Procedure of right issue of shares

Meaning of Right Share of Issue: Right Issue means offering shares to existing members in proportion to their existing shareholding through letter of offer.

A rights issue is directly offered to all existing shareholders of the Company in proportion to their current holding. The company also set a time limit for the shareholder to buy the shares. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts. 

Applicable Section: Section 62 of Companies Act, 2013 contains provisions on "further issue of capital", and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company. 

Provisions of Section 62 of Companies Act, 2013 are mandatory for all Private companies, public companies, listed as well as unlisted companies. 

1. PROCEDURE FOR ALLOTMENT OF RIGHT ISSUE OF SHARES:

a. Call a Board meeting by issue notice of the meeting.

b. Approve right issue including "letter of offer", which shall include the right of renunciation also.

c. Send offer letter to all existing members as on the date of the offer. (Through registered post or speed post or through electronic mode to all the existing share -holders at least three days before the opening of the issue.)

d. Receive acceptance/ renunciations/rejection of rights from members to whom the offer has been sent & also from persons in whose favour right renounced.

e. Call a Board meeting by the issue of notice.

f. Approve allotment by passing of Board Resolution.

g. Issue of share certificates.

h. Authorize two directors and one more person for signature on Share Certificates.

i. Attach list of allottees in form PAS-3 mentioning Name, Address, occupation if any and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the form pas-3.

j. Authorize a director to file E-form PAS 3 (Return of Allotment) to ROC within 30 days of passing of Resolution. 

k. Authorize a director to file E-form MGT 14 for the issue of share certificate within 30 days of passing of Resolution.

l. File E-form MGT 14 for the issue of share & PAS 3 to ROC for allotment.

m. Issue share certificate.

n. Make Allotment within 60 days of receiving of Application Money; otherwise, it will treat as deposits as per deposits rules.

The author is a company secretary in Practice from Delhi and can also be reached at csnitin.in@gmail.com