A private limited company conducting a Rights Issue of shares must ensure the new issue is within its Authorised Share Capital; otherwise, the Memorandum and Articles of Association must be amended. The procedure begins by holding a Board Meeting to call an Extraordinary General Meeting (EGM), where shareholders approve the Rights Issue. Following the EGM, a second Board Meeting decides the terms, including the right to renounce shares, and authorizes the Letter of Offer circulation. A Record Date is fixed, and the offer letter, along with application and renunciation forms, is sent to existing shareholders via post or electronic mode. The offer must remain open for not less than 15 days and not more than 30 days. After receiving applications and collecting money, a final Board Meeting is held to approve the allotment of shares, which must occur within 60 days of receiving application money. The company must then file Form PAS-3 with the Registrar of Companies (ROC) within 30 days of allotment. Share certificates (Form SH-1) must be issued within two months of allotment and properly stamped. Valuation certificates are necessary if shares are issued at a premium, to non-resident shareholders, or as per the Income Tax Act. Finally, details must be entered and authenticated in the Register of Members (MGT-1) within seven days of Board approval.
Checklist for Private Company Rights Issue: Step-by-Step Guide
1. Rights issue of shares should be within the Authorised Share Capital of the company
2. If not, then amend the share capital clause in Memorandum and Articles of Association of the issuer.
3. Hold Board Meeting for conducting EGM regarding rights issue and notice of EGM
4. Conduct EGM to approve Rights issue of shares ( shorter notice also be issued)
5. File MGT 14 within 30 days of EGM
6. Hold Board Meeting and decide on issue of shares on right basis and letter of offer including right to renounce
7. Authorise any one or two directors to issue letter of offer in Board Meeting
8. Fixing of Record date (ie shareholders whose name appeared in register of members as on –fix date)
9. Circulate offer letter through post / electronic mode / speed post to existing shareholders
Issue letter of offer of rights accompanied by
a) Form A -Share application form
b) Form B – form of renounciation
c) Form C – Application form for renounced shares
10. Rights issue is kept open for not less than 15 days and not more than 30 days
11. a) Receive acceptance / renounciation from members to whom offer had sent & for whom offer is renounced in favour
b) Collect application money along with share application forms
12.Again hold Board Meeting to take note of the following:
1. Take note of applications received and renounced in favor of others
2. Approve allotment of rights shares against application received (to be alloted within 60 days of receipt of application money)
3. Issue right issue to allottes and prepare list of allottees
4. Authorise directors to file PAS 3 to ROC within 30 days of allotment and MGT 14 for issue of (MGT 14 not required in case of private company)
13. Share certificate to be allotted within two months of allotment of shares.
14. Issue share certificate in form SH 1
15. Share certificate (to be signed by 2 directors and 1 Authorised signatory)
16. To pay stamp duty on share certificate within 30 days of issue of shares (on issue price of shares)
17. Enter details in Register of members (Form no. MGT-1) – Witin 7 days after Board approval
18. Entry in Register of Member to be authenticated by CS
Valuation certificate for rights issue
1. As per Companies Act 2013 – Not required
2. If shares are issued above Face Value (Premium) – required
3. In case of issue of shares to existing non resident shareholder – required
4. As per Income Tax Act – required
5. Shareholders approval at EGM – required.
Note :
If a private limited company is a non – small company, the shares are to be issued only in demat form.
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