Right Issue – A pre-emptive right given to shareholders in preference to an outsider. 

One of the easiest method to induct the capital in the Company is the Issuance of Shares under Right Issue. Under this, right is given to the existing equity shareholders, in the proportion of their existing holding in the Company. The Shareholders of the Company can either accept the offer, renounce the offer in favour of any other person or reject the offer. The proportion of voting rights is not affected under the Right Issue, if accepted by all the shareholders.

STEPS INVOLVED 

1. Check whether Articles provide any other provisions for offer the Shares to existing Holders.

2. Check whether Authorised Share Capital is sufficient to issue right shares, otherwise it is necessary to increase the Authorised Share Capital of the Company.

3. Before issuing notice for the Board Meeting, following points must be decided in advance:-

i. What will be the cut-off date? (as the shareholders on this date will get offer under right issue)

ii. Time Period for which Offer will be open for subscribing the shares?(Minimum 15 days and maximum 30 days )

4. Issue of Notice for the Board Meeting along with the agenda regarding the issuance of shares on the right issue basis.

5. Convene Board Meeting for approval for issuance of shares on the right basis in the ratio as may be decided by the Board.

6. Issue of Offer Letter to the existing shareholders of the Company in the proportion of their existing shareholding. Offer Letter must state:

    • The date of opening and closing of offer, which will be minimum 15 days and maximum 30 days (In case of Private Company, the period can be shorter than those prescribed, if 90% of the shareholders have given their consent – Notification No. GSR 464 (E) dated 5th June, 2015)
    • The number of shares offered by the Company to the Shareholders
    • The offer shall contain the right to renunciation, unless otherwise provided in the Articles.
    • Dispatch notice through registered post, speed post or through electronic mode or courier or any other mode having proof of delivery
    • Notice must be dispatched at least 3 days before the opening of the issue

7. Shareholders will give Acceptance Letter along with application money or Renunciation letters within the period of offer letter. If no response is received from the shareholders, then it is considered as the offer is declined by the shareholder.

8. There is no need of Opening a Separate Bank Account in case of Right Issue.

9. File Form MGT 14 (within 30 days of passing the Resolution in Board Meeting to issue the Shares) – Exempt for Private Companies as per the Notification No. GSR 464 (E) dated 5th June, 2015

10. Issue of Notice for the Board Meeting along with agenda regarding the allotment of shares.

11. Convene Board Meeting for approval of Board of Directors to allot shares to the person who have given the share application money.

12. Allotment of shares (max time allowed 60 days from the date of receiving application money)

13. File Form PAS 3 to the Registrar of Companies (max time allowed 30 days from the date of allotment)

  • Attachments

1. Board Resolution

2.List of Allottees

14. Issue of share certificates in SH 1 within 2 months from the date of allotment.

15. Make entries of allotment in respective statutory registers maintained in the Company.

16. Apply for the Payment of stamp duty on the shares allotted through Online Mode at https://www.shcilestamp.com/OnlineService/

FREQUENTLY ASKED QUESTIONS 

Q 1. Can the Shares be renounced in favour of outsider?

Ans. Yes, a shareholder can renounced his shares in favour of third party, not being a member of the Company.

Q 2. Is Valuation necessary for issuing shares under Right Issue?

Ans. No, Directors can issue the shares on par or premium as per the sole discretion of the Board. except if the shares are issued to the Non- Resident.

Q 3. If the Shares are not accepted, renounced or rejected by the Shareholders, then what will the Company do in that case?

Ans. The Board of Directors can allot the UN-subscribe portion of shares to any other person.

Q 4. Can a shareholder accept part and renounce the other part of the offer?

Ans. Yes, the shareholder can subscribe to part of his rights and renounce the balance in favour of other person. This is permissible.

Q 5. Is it necessary to open separate bank account of the Company for receiving money of right issue of shares?

Ans. No

Q 6. Can the Company receive money in different calls?

Ans. Yes, it is possible and based on the discretion of the Company.

Author Bio

Qualification: CS
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Location: noida, Uttar Pradesh, IN
Member Since: 06 Jan 2020 | Total Posts: 2

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One Comment

  1. HARSH says:

    if shareholder is having bank account where shareholder is 2nd or 3rd holder. can the same account be used for payment of right issue ?

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