A rights issue agreement is a common legal document used by companies to raise capital through the sale of shares to their existing shareholders. This agreement is also known as a pre-emptive rights offering, as it provides existing shareholders with the right to purchase additional shares in the company before they are made available to the general public.

The purpose of a rights issue agreement is to allow a company to raise capital without diluting the ownership of its existing shareholders. This is because shareholders are given the first opportunity to purchase additional shares at a discounted price, which helps to maintain their ownership percentage. This is also beneficial for companies as it allows them to raise funds without having to pay expensive underwriting fees associated with traditional public offerings.

The terms of a rights issue agreement usually include details on the number of shares that will be offered, the subscription price, and the duration of the offering. Shareholders are given a specific period of time to exercise their right to purchase additional shares, which is usually around two to four weeks.

The subscription price of the shares is usually set at a discount to the current market price, which provides an incentive for shareholders to participate in the offering. The discount offered is often between 10% to 30% lower than the market price, although this can vary depending on the company and the market conditions.

It is important to note that shareholders who do not exercise their right to purchase additional shares will have their ownership percentage in the company diluted. This is because the additional shares that are not purchased by existing shareholders will be made available to the general public through a public offering.

Overall, a rights issue agreement can be an effective way for companies to raise capital while protecting the ownership percentage of their existing shareholders. However, it is important for companies to carefully consider the terms of the agreement and ensure that they are offering shares at a fair price to their existing shareholders. Additionally, companies should be aware of the potential legal and regulatory requirements associated with a rights issue, which can vary by jurisdiction.