The advantages which accrue as a result of issuing further shares to the existing share holders only are :
6 advantages
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Controlling of the company is retained in the hands of the existing shareholders. Issue of right shares makes possible equitable distribution of shares without disturbing the established equilibrium of shareholdings because right shares are offered to the persons who on the date of rights issue are the holders of equity shares of the company proportionately to their equity shares on that date.
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The existing shareholders do not suffer on account of dilution in the value of their holdings if fresh shares are offered to them because value of the shares is likely to fail with fresh issue. This decrease in the value of the shares will be compensated by getting new shares at a price lower than the market price. They are likely to suffer on account of the dilution in the value of their holdings if fresh shares are offered to the general public.
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The expenses to be incurred, if shares are offered to the general public, are avoided.
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Images of the company is bettered when rights issues are made from time to time and existing shareholders remain satisfied.
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There is more certainty of getting capital when fresh issue of shares is made to the existing shareholders instead of to the general public.
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Directors cannot misuse the opportunity of issuing new shares to their friends and relatives at lower prices and at the same time retaining more control in their hands when right shares are issued because in rights issue shares are offered proportionately to the existing shareholders according to their existing holdings.