♦ What is Right Issue?
Where an issue of convertible securities or shares are made by a company on a particular date fixed by the company to its existing shareholders it is called a rights issue.
According to provisions of Section 62(1) of the Companies Act, 2013 where a Company proposes to increase its subscribed capital by the way of fresh issue of shares. Such shares shall be first offered to its existing shareholders who at the date of offer, are holders of equity shares of the company in proportion, by sending a letter of offer subject to conditions.
♦ Do the shareholders have right to renounce its right?
According to Section 62(1) the offer shall deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person and the notice shall contain a statement of this right,
♦ What is the procedure to issue shares on right basis?
1. Conduct Board meeting for approving the proposal to issue shares on right basis and to increase the authorised share capital of the Company, if required.
2. Prepare draft offer letter and calculate offer price.
3. Conduct Board meeting to approve offer letter and conditions for the issue including record date.
4. After the passing of board resolution, the company shall file e-Form MGT-14 within a period of 30 days from passing of the Board Resolution along with the copy of board resolution. It is mandatory for a public limited company.
5. Send the offer letters to all the existing shareholders who as on the date of record date are the members as per the register of members, through courier, registered post, speed post or electronic mode atleast 3 days before opening of offer.
6. The company then shall receive the acceptance from the shareholders or from the persons to whom the right has been renounced.
7. Conduct Board meeting for allotment of shares to persons who have accepted the offer
8. File e-Form PAS-3 with the Registrar within a period of 30 days from the date of allotment along with board resolution and list of allottees.
9. Issue share certificates to the allottees.
♦ What is period of acceptance?
According to section 62(1)(a)(i) of the Companies Act, 2013, the right issue shall remain open for acceptance for a period of not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
Right issue is one of the popular method to raise funds from the existing shareholders of the Company and offer shares at a discounted rate which eventually does not effect the voting power of the shareholders and helps the company to raise funds for meeting its objectives.