What are the disadvantages of right shares?

Written by Editorial Team | Last Updated: August 2026

Issuing right shares—which allow existing shareholders to purchase additional stock at a discount—carries notable disadvantages for both the issuing corporation and its investors. For existing shareholders, a major drawback is the dilution of equity ownership and future voting power if they choose not to exercise or cannot afford to buy their allotted rights. Additionally, the announcement of a rights issue often signals to the open market that the company is facing a cash flow shortage or struggling financially, which can temporarily depress the company's stock price. For the corporation itself, administering a rights issue involves significant legal, underwriting, and administrative expenses.

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