Section 62 of Companies Act, 2013 contains provisions on ‘further issue of capital’ and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company.

Provisions of Section 62 of Companies Act, 2013 are mandatory for all private companies, public companies, listed as well as unlisted companies.

Procedure of Rights Issue (Further Issue) by a Public Company under Companies Act, 2013

STEPS FURTHER ISSUE OF SHARES BY A PUBLIC COMPANY
Step 1 Issue a Notice along with the Agenda to convene a Board Meeting at least 7 days prior the meeting, as per the provisions of Section 179(3).
Step 2 Convene the Board meeting as per Secretarial Standard 1 to pass a Board Resolution for approving the Letter of Offer.[1]

Tentative list which may be discussed and decided:

1. Cut-off date to finalise the list of shareholders to whom the shares shall be offered

2. Period for which the offer shall be open

3. Value at which the shares shall be allotted

4.  Draft letter of offer

Note: Right issue does not require approval of Shareholders through Special Resolution.

Step 3 Send the Letter of Offer to all the existing shareholders via registered post or speed post or through electronic mode.

This letter shall specify the number of shares being offered to the shareholder.

Note: It must be mentioned that the shareholder has a right to renounce the offer in whole, in part or in favour of some other person.

Procedure for Renunciation: The following procedure needs to be followed:

1. The shareholder to whom the offer has been received shall write a letter to the Company specifying his intention to renounce the offer.

2. The person in favor of whom the offer is renounced shall deliver his acceptance letter along with the share application money.

3. The Company shall take note of the renunciation in the board meeting and allot the shares.

Step 4 Per Section 62(2) the Letter of Offer must be posted at least 3 days prior to the date of opening of issue.

Time period of subscription: Per Section 61(1)(a), the offer shall remain valid for subscription for not less than 15 days and not more than 30 days.

Note: If the shareholder does not convey his acceptance of the offer of further shares, it shall be deemed that the offer has been declined.

Step 5 File Form MGT-14 within a period of 30 days from the date of passing the Board Resolution.

Mandatory Attachment: Certified True Copy of the Board Resolution for the issue of Letter of Offer.

Step 6 Accept Application Money.

Note: There is no legal requirement of opening a separate bank account for receipt of money.

Step 7 To convene another Board Meeting within 60 days from the receipt of application money.

Issue a Notice along with the Agenda to convene a Board Meeting at least 7 days prior the meeting, as per the provisions of Section 179(3).

Convene the Board meeting as per Secretarial Standard 1 to pass a Board Resolution for the allotment of shares. Please note that the list of Allottees needs to be tabled.

Step 8 Make Allotment within 60 days of receiving of Application Money.

In the event of failure to allot the shares within a span of 60 days, the money received will be treated as Deposits as per the Companies (Acceptance of Deposits) Rules, 2014.

Step 9 File Form MGT – 14 within a period of 30 days from the date of allotment.

File Form PAS – 3 within a period of 30 days from the date of allotment.

Mandatory Attachment: Certified True Copy of the Board Resolution for Allotment of Shares and List of Allottees.

Step 10 Issue of the share certificate: must be within a period of two months from the date of allotment.

To empower two Directors, in addition to one authorized signatory to sign the Share Certificate in Form SH-1.

Step 11 Payment of stamp duty on issuance of share certificates as per the prevailing relevant state law.

[1] There is no prescribed format for Letter of Offer in case of right issue of securities. Format of Letter of Offer prescribed under Companies Act, 2013 is pursuant to Section 42 and Rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 and this is not applicable for Section 62.

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