What is the usual effect of a rights issue on existing shareholders who do not exercise or sell their rights?
Correct answer: B. Their voting and ownership percentage may be diluted
- A. Their dividend becomes legally guaranteed
- B. Their voting and ownership percentage may be diluted
- C. Their shares automatically become preference shares
- D. Their original share price is fixed permanently
Explanation
A rights issue offers new shares to existing shareholders, usually in proportion to their current holdings. A shareholder who does not take up or sell the rights may own a smaller percentage of the enlarged share capital.
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