Right Issue vs Initial Public Offering (IPO) – Difference

Differences of Right Issue and Initial Public Offering (IPO)

Differences between Right Issue and Initial Public Offering (IPO) are explained in the below table,

Right IssueInitial Public Offering (IPO)

A rights issue is an offer provided to its existing shareholders to subscribe to the shares at a discounted price.

An initial public offering (IPO) is where a company sells its stocks to the public first time.

Offer to the existing shareholders.

The company sells its stocks to the public first time, hence new investors can purchase shares. But existing owners of a private company can buy shares offered to the public.

Share offer with discounted price.

Share the offer with a price. But it fluctuates with the market conditions during the IPO process.

Post rights issue the number of shares increases, and it dilutes the value of the share, and in turn, decreases the share price in the market.

After an IPO, the price of the stock will fluctuate as investors buy and sell the shares.

A rights issue is mainly offered to raise additional capital.

An IPO provides the company with access to raise good capital, which gives the company a greater ability to grow and expand.

A rights offer can be fully utilized, partially accepted, or completely rejected.

There is no such option or need for those options for shareholders.

A right issue is not an exit strategy for the company’s investors.

An IPO is an exit strategy for the company’s founders and early investors.

Equity percentage will change if shareholders ignore the right or sell the right to other parties.

After IPO the equity % will be re-calculated when compared with the original owner with company founders/early investors.

Example of a rights issue,

The company needs to raise additional capital. Debt is not an option for the company. Hence, the company offers the right issue where the existing shareholders can buy additional shares at a discounted price compared to the market price. The shareholder has the option to either accept the offer, sell the right to any other party or ignore it. Shareholders’ equity percentage will remain the same only if they accept the offer.

Example of an IPO,

The company was founded/invested by private owners and/or venture capitalists and is quite established now. Company management decided to transit from a private to a public company through an initial public offering (IPO) for the betterment of the company’s future. The company’s founders and early investors can buy shares through IPO or else ignore exit from the investment. IPO allows the company to raise equity capital from public investors.
Right Issue vs IPO

Differences between Right Issue and Initial Public Offering (IPO) are explained in the below points,

  • A rights issue is an offer provided to its existing shareholders to subscribe to the shares at a discounted price.
    In opposition, an initial public offering (IPO) is where a company sells its stocks to the public first time.

  • A right issue offered to the existing shareholders.
    But IPO is when the company sells its stocks to the public first time, hence new investors can purchase shares. But existing owners of a private company can buy shares offered to the public.

  • A right issue is a stock offer with discounted price.
    But IPO is a stock offer with a price. But it fluctuates with the market conditions during the IPO process.

  • Post rights issue the number of shares increases, and it dilutes the value of the share, and in turn, decreases the share price in the market.
    But after an IPO, the price of the stock will fluctuate as investors buy and sell the shares.

  • A rights issue is mainly offered to raise additional capital.
    In opposition, an IPO provides the company with access to raise good capital, which gives the company a greater ability to grow and expand.

  • A rights offer can be fully utilized, partially accepted, or completely rejected.
    But for an IPO, there is no such option or need for those options for shareholders.

  • A right issue is not an exit strategy for the company’s investors.
    An IPO is an exit strategy for the company’s founders and early investors.

  • In a right issue, the company equity percentage will change if shareholders ignore the right or sell the right to other parties.
    But after an IPO the equity % will be re-calculated when compared with the original owner with company founders/early investors.

  • Example of a rights issue: the company needs to raise additional capital. Debt is not an option for the company. Hence, the company offers the right issue where the existing shareholders can buy additional shares at a discounted price compared to the market price. The shareholder has the option to either accept the offer, sell the right to any other party or ignore it. Shareholders’ equity percentage will remain the same only if they accept the offer.

    Example of an IPO: the company was founded/invested by private owners and/or venture capitalists and is quite established now. Company management decided to transit from a private to a public company through an initial public offering (IPO) for the betterment of the company’s future. The company’s founders and early investors can buy shares through IPO or else ignore exit from the investment. IPO allows the company to raise equity capital from public investors.

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