Stock rights are the rights of shareholders to purchase stock at a set contract price, rather than the market price, at a future time. Here are some suggestions for decide when to offer stock rights to shareholders.
Instructions
1. Determine whether the company has debt that needs to be paid down. Stock rights are a way for companies to raise cash to pay down debt.
2. If your company must expand and does not want to take on more debt, use the stock right plans.
3. Decide whether the company wants to offer rights that shareholders can transfer. The stock options are non-transferable, but stock rights are transferable. Shareholders can transfer their shares on the open market.
4. Determine whether dilution is too much for the company to accommodate. Dilution can reduce the earnings per share or book value per share of stock through the conversion of the rights into shares. This causes several problems with stock voting rights, overhang, and buyback programs. The company may be raising capitol, but must consider the cost of this capitol.
5. Determine whether other options are more economically feasible. A company can borrow, sell more stock, or offer stock option plans to reserve or increase cash. The company must decide whether these options are better than offering stock rights.
6. Tell the public why you are offering stock rights. An investor may be quick to snatch up stock at a reduced price, but others may be skeptical of why the company is doing this. Through the media, inform the public that the company is not going under or in desperate financial need.
