CS Jatin Bajaj

What is Right issue of shares?

  • Right issue means offering shares to existing members in proportion to their existing Shareholding
  • Object is to ensure equitable distribution of shares

Relevant Section: section 62(1) (a) of Companies Act 2013

  • Company decide to issue fresh shares and these shares are issued to existing shareholders in proportion to existing person who are holders of Equity shares

STEP BY STEP PROCEDURE FOR RIGHT ISSUE OF SHARES

  • Company will decide cutoff date
  • Company will Prepare draft offer of letter
  • Issue the notice of Board Meeting to all directors of Company at least 7 days before date of Board Meeting
  • Hold the Board Meeting and pass resolution for approval of offer letter
  • Authorize Director of the Company to issue letter of offer
  • Letter of offer shall be dispatched through registered post, speed post or through electronic mode to all the existing Shareholders.

Important Note:  Offer shall remain offer at least 3 days of issue of letter of offer

Minimum days: offer will be open for minimum 15 days

Maximum days: offer will remain offer for maximum 30 days

Point to be noted :   Vide Notification dated 5th June 2015, if 90%  of members in a Private Company have given their consent in writing or in electronic mode, the period of lesser than 15 days shall apply.

The above provision shall only be applicable to Private Company

  • File Form MGT 14 within 30 days of passing Board Resolution

Attachments to be attached with MGT 14

Certified True Copy of Board Resolution for issue of letter of offer

  • Receive Money from the Shareholders
  • Call Board Meeting after receiving Share Application Money
  • Prepare list of allottes before Board Meeting
  • Hold the Board Meeting and pass resolution for allotment of shares within 60 days of receiving application money.
  • File PAS 3 with ROC
  • Attachments required under PAS 3
    • List of allottes
    • Board Resolution for allotment of shares
  • Also pass Board Resolution for issue of share certificates in Board Meeting
  • Authorize 2 Directors and a Authorize person to sign Share certificate
  • Issue share certificate Form in SH-1

Will Provisions of Right issue of shares is applicable on Nidhi Company ?

  • No, as per Notification dated 5th June 2015, entire provision of Right issue of shares and section 62 will not be applicable to Nidhi Company

Rejection of offer of Right issue and issue shares to outsiders

  • First of all Company gives the offer to existing shareholder under Right issue of shares
  • If shareholder is not interested in accepting the offer of additional shares , he can renounce the same in favour of any other person who may not be the member of Company
  • Right to issue the shares to outsider must be mentioned in Letter of offer given to Shareholders

Important Note: Right issue is at a price lower than prevalent market price. A Shareholder who may be short of funds can renounce his right to specified number of shares by selling his right to subscriber.

Can the Shareholder exercises both the Rights of Right issue and renounce the balance to other?

  • Yes, Shareholder can subscribe to part of his rights and renounce the balance.

Does Prospectus is required in case of Right issue?

According to section 23(2) of Companies Act 2013, issue of Prospectus is not necessary in Right issue whether with our without right of renouncement.

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Category : Company Law (2998)
Type : Articles (10811)
Tags : Companies Act (1525) Companies Act 2013 (1279)

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