RIGHT ISSUE OF SHARES

The concept of Right issue of shares is governed by section 62(1)(a) of the Companies Act, 2013. The said section deals with provision related to increase in subscribed share capital of the Company by issue of further shares.

In simple terms, Right issue of shares means offer of shares to all the existing Equity or Preference shareholders of the Company in proportion to their existing shareholding in the Company. It needs to be noted that both Equity shares and Preference shares can be issued under this mode as both will lead to increase in subscribed share capital of the Company.

The following steps and procedure is required to be followed: 

1. Convene a meeting of Board of directors: The first step in the process of right issue of shares is to convene a meeting of Board of Directors, for which, notice along with agenda and notes to agenda needs to be circulated to the Directors at least 7 days before the meeting. The meeting can be also called at shorter notice to discuss on the agenda items.

Right Issue of shares

2. Deciding on the cut off date and finalisation of letter of offer: The Board shall in its meeting approve the offer letter specifying the number of shares that will be offered to the shareholders and shall determine the cut off date for the process. The Board shall authorize any director/directors to circulate the offer letter to the shareholders. The letter of offer shall also specify the right to renounce the shares in favour of some other person, in case a shareholder does not wish to accept the offer.

3. Renunciation of offer:-The shareholders to whom offer letter has been circulated can: Accept, or Reject the offer, wholly or partially or can renounce the offer in favour of some other person.

4. Time-period of offer letter:- The letter of offer needs to be circulated by registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue. Also, the offer should be kept open for a time which shall not be less than fifteen days or such lesser number of days as may be prescribed 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.

5. Rejection of offer: – In case where the offer has been rejected by the shareholder who did not subscribe to the offer, the Directors can dispose of the shares as they deem fit, which is not dis-advantageous to the shareholders and the company.

6. Receipt of share application money from the shareholders:-The Company shall receive share application money from the shareholders who have accepted the offer before the date of closure of offer.

7. Convene a meeting of Board of directors for allotment of shares: A meeting of Board of Directors needs to be convened to approve the allotment of shares to the shareholders /persons from whom money has been received and to authorize any director/directors for making the necessary filing with the Ministry, for issuing share certificate and making payment of stamp duty.

8. Reporting to the Ministry:- The Company shall file form PAS-3 within 30 days of the Board meeting as per the requirement of section 39 of Companies Act, 2013.

9. Issuing of share certificates:- The Company shall issue share certificate within 60 days of the allotment which shall be signed by two directors of the Company and shall have the common seal of the company, if any as per the requirement of section 56 of Companies Act, 2013.

10. Payment of Stamp duty:- The Company needs to pay stamp duty on the share certificates at the applicable rates prevailing in the respective states where the registered office of the Company is situated.

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Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 62 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while opting for right issue in company, The author has tried to cover all the important points. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

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Qualification: CS
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Location: delhi, New Delhi, IN
Member Since: 13 Mar 2020 | Total Posts: 1

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