Subscription Price

What Is Subscription Price?

A subscription price is a static price at which existing shareholders can participate in a rights offering that a public company conducts. The term may also refer to the exercise price for warrant holders in a particular stock. A company may issue warrants at different times, along with debt offerings. Subscription prices may vary slightly from one owner to another.

Understanding Subscription Price

The subscription price will be the same for all shareholders and typically less than the current market price of the underlying stock. Shareholders participate so they are able to retain their proportional ownership of the business.

Rights and warrants offerings are specific ways to raise capital although they are less common than a secondary offering or even an initial public offering (IPO) may signal a lack of demand for shares in the open market. Issuing rights encourage more long-term ownership of the company as existing shareholders are increasing their investment in the company.

A rights offering may also come with an oversubscription privilege that allows existing shareholders to pick up any extra rights to shares that other shareholders have not claimed. Rights offerings tend to happen quickly as the subscription price is static and needs to be relevant to the current market price for shareholders to be interested in the deal.

Shareholders can trade the rights on the open market just like ordinary shares, up until the date on which the new shares can be purchased.

Subscription Prices and Public Offerings

Companies that are cash-poor can use rights issues as a way to generate funding if needed.

A specific set of protocols occurs when gearing up for an IPO, including:

Secondary offerings have a similar protocol; however, since the company already trades on a public exchange after the IPO, the secondary process includes less information collection and is a more streamlined issuing process.