RIGHTS ISSUE OF SHARES TO PRIVATE LIMITED COMPANY
Definition: Rights offering (issue) is an issue of rights to a company’s existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period. Object is to ensure equal distribution of Rights.
Section: It is governed by Section 62 of Companies Act, 2013
Procedure for Rights Issue:
| STEP-1 |
| A. Offer letter preparation by the Company deciding the cut off date. |
| B. The Company will call meeting of the Board of Directors by giving notice of atleast 7 days days before the date of meeting along with the agenda to be discussed. |
| STEP-2 |
| C. Pass Board Resolution for approval of Offer Letter. Authorize any director to issue the Letter of Offer to the shareholders. Offer letter can be dispatched through Registered Post, Speed Post or by Electronic mode. File MGT-14 with ROC within 30 days of passing the Board Resolution (**). |
| STEP-3 |
| D. Offer will be open at least after 3 days after the issue of letter of Offer. However as per the notification dated 05.06.2015, Notice for making the rights offer may be dispatched in less than 3 days before opening the issue. |
| E. Offer to subscribe to share will be open for minimum 15 days and maximum 30 days. However, if 90% of the members of Private Limited Company have given their consent in writing or in electronic mode, period lesser than 15 days shall apply). |
| F. Private Company may now open and close the Rights Issue even on the same day. |
| STEP-4 |
| G. Once the consent is received from shareholders, receive the money from them. |
| STEP-5 |
| H. Issue notice of the Board Meeting atleast 7 days prior to meeting along with the agenda to be discussed. |
| I. Present the list of allottees before the meeting. |
| J. Pass Board Resolution for allotment of shares within 60 days of receiving the money. |
| STEP-6 |
| K. File PAS-3 within 30 days from date of allotment. (Attachments: 1. CTC of Board Resolution for allotment of shares. 2. List of allottes.) |
| L. Issue the share certificate SH-1 within 2 months from date of allotment. |
PROCESS FOR RENUNCIATION OF RIGHTS:
- Company will give offer to existing shareholders under Right Issue of Shares.
- If a shareholder is not interested, he can renounce the rights in favour of some other person. In this way, shares can be issued to outsiders).
- Letter of Offer must specify the rights of renouncement.
- Shareholder can exercise both the rights. He can partly subscribe to shares and partly renounce.
- In this case, Company will give Letter of renunciation as well along with Offer letter.
- In case of renunciation, Shareholder will give Letter of Renunciation to Company.
- Company will receive the money from the person in whose favour it is renounced.
- Post Board Meeting, Company will allot the shares.
KEY POINTS TO BE REMEMBERED.
1. Subscription to right issue can be done in the form of Cash.
2. (**) (In case of Private Company, there is no need to pass special resolution and file MGT-14, in case the shares are issued to the employees under a scheme of ESOP as per Sec 62(1)(b) as per notification dated 05.06.2015. However, if shares are issued to the shareholders as per Sec 62(1)(a), passing special resolution and filing MGT-14 is mandatory. Please refer the notification dated 05.06.2015 by MCA.
Link: https://taxguru.in/company-law/exemptions-private-companies-462-ca-2013.html
3. As per the Companies Amendment bill passed by Lok Sabha, it is proposed that Rights Issue Offer Letter can be Sent through Courier.
4. In the case of Conversion of Loan by Company in shares, Provision of Section 62 are not applicable. Special Resolution is required to be filed and it will be as per the Terms in the agreement.
5. As per Notification dated 05.06.2015, entire provision of Right issue of shares and section 62 will not be applicable to Nidhi Company.
Please refer all the relevant section, rules, notifications, amendments as applicable. The Author is not responsible for any losses incurred.
Content is merely for sharing knowledge. Author can be reached at caswetamakwana@gmail.com or 9819244185.
Author Bio
The Private Co. can open and close the offer on the same day. how? minimum 3 days we have to keep it open, right?
Nice article nicely shared thanks
Q: Now as per the latest Amendment act letter of offer can be with hand delivery also ?
CS Manish Buchasia
IP Manish Buchasia
Practising Company Secretaries
Insolvency and Bankruptcy Professional