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The move will mean the bank can stay out of the government's Asset Protection Scheme (APS), however it will still have to pay the Treasury £2.5 billion for the privilege.
It shares rose on the stock market following the news, climbing 2.18 per cent to 86.85p at 10:35 GMT.
Lloyds hopes to raise at least £21 billion from the move and is also looking to convert £7.5 billion of existing debt into capital.
According to Reuters, the rights issue is the largest of its kind, however other terms of the deal may result in an increase in the number of people working in the financial sector looking for ways to earn extra money, as Lloyds is to close 600 branches over the next four years.
Royal Bank of Scotland, which will take part in the APS, is to dispose of 318 of its branches.
Posted by Chris Weaver
