Company decides to issue fresh shares, these should be offered to existing shareholders in proportion to existing persons who are holders of equity shares. ‘Right Issue’ means offering shares to existing members in proportion to their existing share holding. The object is, of course, to ensure equitable distribution of Shares and the proportion of voting rights is not affected by issue of Fresh shares.
A rights issue is an offer made by the company to buy additional shares of the company. This is not compulsory, and shareholders can refuse to buy additional shares if they do not see any value in the extra shares in their portfolios.
With a rights issue, because more shares are issued to the market, the stock price is diluted and will likely go down.
In case the Rights issue of shares are offered to a Foreign Shareholder, the company has to get a share valuation as per requirements under FEMA.
The rights issue does not require the approval of shareholders, and hence the board can proceed towards the issue. Issue Letter of Offer: On the passing of the resolution, the letter of offer is issued to all shareholders, and the same is sent through registered post or speed post.
The offer will remain open for a minimum of 7 days and a maximum of 30 days. Existing shareholders can accept, reject, or renounce the offer.