COMPANY LAW Complete Concept of Rights issue of Shares Company Under Companies Act 2013

Complete Concept of Rights issue of Shares Company Under Companies Act 2013

Complete Concept of Rights issue of Shares Company Under Companies Act 2013

Rights issue of Shares Company.

  • The right issue of shares is basically the way through which a company raises additional funds.
  • The right issue is an invitation to existing shareholders to purchase additional new shares in the company.
  • The company is giving the shareholder the chance to increase the shareholding in the company

Reason for Issue of Rights

As the company grows, it is searching for ways to increase its resources, so the business is turning to share issues. Instead of the issue of shares to the general public, which would create a disparity in the voting rights of current shareholders, the corporation has recourse to the issue of new shares to existing shareholders in comparison to its present shareholding. This then addresses the aim of new capital while enabling current shareholders to maintain their voting rights.

RIGHT TO RENUNCIATE :

Section 62 of the Companies act 2013, provides that the person getting the offer for accepting the shares can also renounce the offer to some person.

another person. one who is not the shareholder of the company.

THE PROCEDURE OF RIGHT ISSUE

  1. Call a board meeting by the issue of notice of the meeting.
  2.  Approve the right issue including “ letter of offer " which shall include the right of renunciation also.
  3. Sent an offer letter to all the existing members as of the date of the offer.through registered post or speed post or electronic mode to all the existing shareholders at least 3 days before the opening of the issue
  4. Receive acceptance of renunciation or rejection of rights from the member to whom the offer has been sent and also from the persons in whose favour right is renounced.
  5. Call a board meeting by the issue of notice for allotment of shares to the persons who have accepted the offer
  6. Pass board resolution to Approve allotment of shares and Authorize two directors and/or one more person for signature on share certificates and one or more directors for filing form PAS-3 with the ROC within 30 days of allotment of shares
  7. File Form PAS-3 with the ROC within 30 days of allotment of shares attaching therewith board resolution and a list of allottees in form PAS – 3 mentioning a name, address, occupation if any,
  8. Issue of share certificate to all the members who accepted the offer.

Period of acceptance right issue

The right issue shall remain open for at least 15 days but not more than 30 days. If no response is given by the members in that period then it is assumed that the offer has been declined by the member.

Who can offer the right issue

Any company can offer the right issue whether it is a public company, a private company it does not matter whether the company is listed or not.

Advantages of the rights issue

  1. The company saves a significant amount of money such as advertising, underwriting fee, and so on.
  2. The control of the company remains in the hand of shareholders.
  3. There is an equal distribution of shares and the same proportion of voting rights.

Disadvantages of a rights issue 

  1. The company may not be able to raise funds and fail to achieve its target.
  2. The value of each share may get diluted if there are an increased number of shares issued.
  3. It creates a negative market sentiment. It is normally assumed that the company is struggling to run its business operation.
  4. The problem of the right shares helps the current shareholder and gives them the advantage of applying for shares at a reduced price and maintaining their voting rights. A company raises a substantial portion of share capital by relying on the issue of rights shares.

Issue of share capital on the right issue under section-62 of companies act, 2013

FAQ On Rights issue of Shares Company Under Companies Act 2013

Q1. Can the right issue offer remain open for more than a month?

Ans. No, the right issue cannot be open for more than a month. It can open for 15 to 30 days.

Q2. Is there is a need for a separate bank account for the right issue?

Ans. No, there is no need for a separate bank account for the right issue.

Q 3 What is the time limit for filing Form PAS-3 in case of allotment of shares by way of the right issue?

Ans The company must file form PAS-3 within 30 days of allotment of shares.

Rajput Jain and Associates: Made and posted By Expert : 

Mr Akshay Gupta (Company Secretary) is a diligent and innovative qualified Company Secretary, striving in matters related to Corporate Law. Akshay takes a deep interest in corporate, NBFC and FDI matters and his specialization includes corporate Compliance, FEMA Compliances, and NBFC Registration. As a Company Secretary, Akshay is passionate about matters relating to corporate funding, NBFC, and its compliances

Disclaimer: The content of this post isn't considered to be professional or legal advice, We aren't responsible for any damages arising from your access to the location content & must not be relied on or used as a substitute for legal advice from a lawyer professional in your jurisdiction. CARajput is among India's big digital compliance services platform which committed to helping people have started & developed their businesses. We had started with the goal of creating it easier for start-ups to start out their business. Our main aim is to assist the businessman with applicable laws & regulations compliance and providing support at each & every level to make sure the business stays compliant and growing continuously. For any query, help or feedback you may in touch on singh@carajput.com or Call or what’s-up on 9-555-555-480

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