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When a company declares a rights issue, it will usually send its shareholders a provisional letter of allotment for the new shares. This means the new shares have been allocated to the shareholders. If the shareholders want to take up all or part of the rights issue they will accept the allotment by paying for the shares. Because rights issues are often made at a discount to the prevailing market price the provisional letter of allotment is valuable. The shareholders can renounce or sell the letter of allotment to another person who wants to subscribe for the shares. This process is sometimes called the sale of rights nil paid.

Where a holder disposes of a provisional letter of allotment of rights which he has received (or become entitled to receive) from a company the disposal is treated as a capital distribution received by him from the company¹.