INTRODUCTION: – Right issue means an issue of capital to the existing shareholders of the company in same proportion to the existing holding through letter of offer.
For example – If a company has a paid up capital of Rs. 1,00,000 (Rs. One lac only) divided into 10,000 (Ten thousand) equity shares of Rs. 10 (Ten only) each. Shareholding of the company are as follows:
Mr. A – 4000 shares (40 %)
Mr. B – 2000 shares (20 %)
Mr. C – 4000 shares (40%0
And if company wants to raise capital of Rs. 50,000 (Rs. Fifty Thousand only) divided into 5000 (Five Thousand) equity shares of Rs. 10 (Ten only) each by way of right issue then company shall offer shares in the same proportion to his existing holding which are as follows:
Mr. A- Right to subscribe 2000 shares (40 % of 5000)
Mr. B- Right to subscribe 1000 shares (20 % of 5000)
Mr. C- Right to subscribe 2000 shares (40% of 5000)
Note:- The offer made to the existing shareholding is not binding upon them, they can renounce his right in favour of any other person (whether Member or Not).
CHECKLIST FOR RIGHT ISSUE
⇒ Check weather articles authorise right issue:- If not, take steps to increase the authorised capital.
⇒ Letter of offer:- Finalize the draft letter of offer for issuing equity shares through right issue. No specific format of Letter of offer is prescribed. However letter of offer shall contain offer price, face value of shares, Mode & terms of payment and right to renounce.
⇒ Board Meeting:- Hold Board Meeting and pass resolution for approval of letter of offer. Notice of BM to be sent atleast 7 days before date of BM.
⇒ Filing of MGT-14 :- File MGT-14 within 30 days from passing board resolution. (This provision is not applicable to private companies).
⇒ Dispatch letter of offer:- Dispatch Letter of Offer through registered post, speed post or electronic mode to all existing shareholders. Letter of Offer to be sent atleast three days prior to opening of issue.
Note:- Hand delivery of letter of offer is not permissible.
⇒ Time period of open offer:- Offer to be kept open for minimum 15 days upto 30 days.
Provided that in case of a private company, if ninety percent of members have given their consent in writing or in electronic mode, the period lesser than those specified shall apply.
⇒ Deemed refusal:- No Intimation in 30 days would be deemed to be refusal of the offer.
⇒ Another Board Meeting:– Hold another Board Meeting to approve issue of shares to shareholders who have opted for the Right Issue of shares. Notice of BM to be sent atleast 7 days before date of BM.
⇒ Issuance of shares:– Issue shares in accordance with the list of allottees approved in the Board Meeting.
⇒ Filing of PAS- 3:- File PAS-3 within 30 days from date of allotment – return of allotment.
⇒ Issuance of share certificates:- Issue Share Certificate within 2 months from date of allotment.
CHECKLIST FOR RIGHT ISSUE BY LISTED COMPANIES- SEBI ICDR REGULATIONS, 2009
Applicability: These Regulations are applicable to a Rights Issue of a Listed Company, where the aggregate value of specified securities offered is fifty lakh rupees or more
Check weather articles authorise right issue:- If not, take steps to increase the authorised capital.
Appointment of merchant banker and other intermediaries : The issuer shall appoint one or more merchant bankers, at least one of whom shall be a lead merchant banker and shall also appoint other intermediaries only those who are registered with SEBI, in consultation with the lead merchant banker, to carry out the obligations relating to the issue.
In-Principle Approval of Stock Exchange: The Company must obtain in-principle approval for its Rights Issue from the Stock Exchanges where the company shares are listed.
Documents to be submitted before opening of the issue: The Lead merchant Banker shall submit the documents mentioned in regulation 8 of chapter II of along with draft offer document.
Filing of offer document: File letter of offer atleast 30 days prior to file the same with designated stock exchanges. If sebi specifies any change in it then issuer shall carry out such changes.
The offer document filed with the board under this regulation shall also be furnished to the Board in a soft Copy in the manner specified in Schedule V.
Format of Letter of offer: Specified in schedule viii of part A or E specified in regulation 57(2)(b). If a company complies conditions mentioned in clause 1 of part E then it has required to make l.o.o according to Part E.
Pre-issue advertisement of right issue: atleast 3 days before opening of the issue.
Abridge L.o.o to shareholders: atleast 3 days before opening of issue.
Minimum Subscription: Minimum subscription of issue size shall be 90 % of the issue size.
Record Date – 7 working days notice given for record date.
Issue Opening Date: As according to regulation 11 of chapter II.
The Rights Issue must be opened for subscription for a minimum period of 15 days and Maximum period of 30 days
Pricing: The issue price shall be decided before determining the record date which shall be determined in consultation with the designated stock exchange.
Over subscription: No part of over subscription of Rights Issue shall be retained by the Listed Company; the amount has to be refunded
Withdrawal of the Rights Issue: No Rights Issue can be withdrawn by issuer after fixing the Record Date. In case if it has withdrawn after announcing record date, no further issue of capital is allowed for a period of 12 months from the record date.
Intimation to stock exchange: atleast 2 days intimation to stock exchange as per regulation 29 of sebi, lord regulations 2015.