Meaning of Right Issue (Meaning, Provisions, and Procedure) – Scholarszilla

Meaning of Right Issue

Meaning of Right Issue

When a company wants to raise further capital, it can issue shares to its existing Equity shareholders in proportion to their existing shareholding. Such an issue of shares is called as ‘Rights Issue’ of shares. Whenever a company makes a further issue of shares, the existing Equity shareholders have ‘pre-emptive rights’ to subscribe to the new shares offered by the company.

Pre-emptive Rights: Means first option to buy.

A company can make a Rights Issue when it is making a private placement.

Private placement: When securities are offered to a select group of people.

Provisions

A company making Rights Issues has to fulfill the following provisions.

1. Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
2. A company has to send ‘Letter of offer’ to the existing shareholders at the time of issuing Rights shares.
3. The letter of offer shall mention:
   i) the number of shares offered
   ii) the period of offer i.e. offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of offer.
   iii) the right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
4. The letter of offer can be sent by registered post, speed post, courier or through electronic mode.
5. If a shareholder does not respond to the Rights Issue offer within the stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
6. The company has to obtain minimum subscription i.e. 90% of the issue.

PROCEDURE OF RIGHT ISSUE OF SHARES

STEP-1

• Company will decide the cutoff date.
• Company will Prepare Draft of Offer of Letter.

STEP-II
Call Meeting of Board Director:

• Issue Notice of Board Meeting to all the directors of company at least 7 days before the date of Board Meeting.
• Attach Agenda of Board Meeting along with Notice.
• Attach Notes of Agenda along with Agenda.

STEP-III
Hold the Board Meeting:

• Check the quorum of Board Meeting.
• Identify the Shareholders to whom you will issue shares.
• Pass Board Resolution for approval of offer letter.
• Authorize a director of company to issue Letter of Offer.
• Letter of offer shall be dispatched through registered post or speed post or through electronic mode to all the existing share holders

STEP-IV

• Offer will be open at least after 3 days of issue of letter of offer.
• Offer will be open for minimum 15 days or maximum for 30 days.

STEP-V
File Form with Registrar:

• File MGT-14 with Registrar within 30 days of passing of Board Resolution.
• CTC of Board Resolution for issue of letter of offer.

STEP-VI

• Receive the Money from the Shareholders

STEP-VII
Call Board Meeting after receiving of Share application money.

• Issue Notice of Board Meeting to all the directors of company at least 7 days before
• the date of Board Meeting. [Section-173(3)]
• Attach Agenda of Board Meeting along with Notice.
• Attach Notes of Agenda along with Agenda.

STEP-VIII
Hold the Board Meeting:

• Check the quorum of Board Meeting.
• Present List of Allottes before the Meeting.
• Pass Board Resolution for allotment of shares (within 60 days of receiving of money).

STEP-IX
File form with ROC:

• File PAS-3 with Registrar of Company.
• List of Allottes.
• Board Resolution for allotment of Shares.

STEP-X
Issue Share Certificate:

• Pass Resolution for issue of Share Certificate in Board Meeting.
• Authorize two directors and authorize person to sign share certificate.
• Issue Share Certificate in Form- SH-1 (As per Section-56 with in 2 (two) months from the date of allotment of shares

• Public Deposit
• Global Depository Receipt (GDR)
• Features of Shares
• Meaning of Equity Shares