A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date

Governing Section - Section 62 of Companies Act, 2013.

• It is a formal invitation to the existing shareholders to buy additional new shares in the company
• It is issued at a discounted rates than market rates
• It enables the shareholders to increase their exposure to the stock at a discount price
• The shareholder who getting this right can have option to assign such right to other person or can waived or modified it
• It is a method to increase the share capital of company
• It ensures equitable distribution of shares and the proportion of voting right is not affected by issue of fresh shares
• Example:- If right issue is 2:5, it means existing shareholder can buy 2 shares for every 5 shares held

Procedure for Private Company

• Call board meeting for offer of shares, fixing price, number of shares to be issued, offer date, closing date, right of renunciation and pass the board resolution for the same
• Dispatch Letter of offer to all the existing shareholders via register post or speed post or electronic mode.
• As per section 62(2) of Companies act, the letter of offer must be posted at least 3 days earlier than the date of opening of the issue, but notice can be sent lesser than 3 days before the issue opens, provided 90% of the members have given their consent in writing.
• The offer shall remain open for a minimum 15days and a maximum of 30 days, however it can be kept open for less than 15days provided 90% of the members give their consent.
• Accept the application money
• Call the board meeting and pass the resolution for the allotment of shares
• File the PAS-3 within  30 days period from the date if allotment along with CTC of Board resolution for allotment of shares and list of allottees
• Issue share certificates (Form SH-1) within period of two months from the date of allotment

Procedure for Public Company

• Call board meeting for offer of shares, fixing price, number of shares to be issued, offer date, closing date, right of renunciation and pass the board resolution for the same
• Dispatch Letter of offer to all the existing shareholders via register post or speed post or electronic mode.
• As per section 62(2) of Companies act, the letter of offer must be posted at least 3 days earlier than the date of opening of the issue. The offer shall remain open for a minimum 15days and a maximum of 30 days.
• File MGT-14 within 30 days from the date of passing Board Resolution along with CTC-of Board resolution for the issue of ‘Letter of offer’
• Accept the application money
• Call the board meeting and pass the resolution for the allotment of shares
• File the PAS-3 within  30 days period from the date if allotment along with CTC of Board resolution for allotment of shares and list of allottees
• Issue share certificates (Form SH-1) within period of two months from the date of allotment

Disclaimer

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.

Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.