Advantages of Right Issue of Shares:
- Faster and less regulation-intensive than public offerings, with minimal external processes.
- Shares are offered at a lower price than the current market rate, encouraging shareholder participation.
- Funds raised from shareholders avoid the need for additional debt, improving financial stability.
- Shareholders can increase their ownership and benefit from future capital growth.
- A quick process to raise funds.
- Existing shareholders maintain control of the company, avoiding dilution of decision-making power to external investors.
Disadvantages of Right Issue of Shares:
- Impact on Earnings per share with an increase in number of shares.
- Impact on share price due to increased supply of shares.
- Decrease in EPS by profit spreading over an increased number of shares.
- It may impact the company's reputation by giving the wrong signal that it is struggling for funds and hence the issuance of rights shares.
