RIGHT ISSUE OF SHARES

This article will be followed by series of articles  which will give you a complete perspective  of the concept of right issue of shares from the companies view point and from the stakeholders as well.
Also, in future articles there will be overview of the SEBI regulations and compliance's.

MEANING OF RIGHT ISSUE

 When a company having share capital wants to increase their subscribed capital by issue of further shares then it can do so by offering shares to the existing shareholders in proportion to the paid up capital.

DEFINITION AS PER COMPANIES ACT, 2013

As per Section 62(1)(a), where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the conditions.

Also as per Rule 23 of Companies (Prospectus and Allotment) Rules, 2014 a public and a private company can issue shares by the way of right issue.

Also the listed company which intends to get their shares listed has to comply with provisions of Securities and Exchange Board Act, 1992 and rules and regulations made there under.

COMPANIES ELIGIBLE FOR RIGHT ISSUE

1. Public Company having share capital

2. Private Company having share capital

3. Companies listed on Stock Exchange

PROCEDURE FOR RIGHT ISSUE AS PER SECTION 62 OF COMPANIES ACT, 2013 (PRIVATE AND UNLISTED COMPANIES)

• Issue of notice for Board Meeting as per Secretarial Standard-1 and Section 179(3) i.e. at least 7 days before meeting
• Hold the Board Meeting and pass board resolution for approval of draft letter of offer
• Dispatch letter of offer to all existing shareholders through registered post, speed post  or electronic mode, courier or any other mode having proof of delivery.
• Notice must be sent at least 3 days before opening of the issue and in case of private companies only notice can be sent for less than 3 days if 90% of the members agree and consent can be in electronic mode.
• Time period of open of subscription shall be for minimum 15 days and for maximum 30 days but in case of private companies offer can be open for less than 15 days if 90% of the members agree
• Public companies have to file FORM MGT-14 within 30 days of passing board resolution along with certified true of copy of board resolution for approval of draft letter of offer as attachment
• Call board meeting after the application money is received as per SS-1 and Section 173(3) with agenda and notes for meeting  and pass resolution for allotment of shares  
•  As per Rule 12 of Companies (Prospectus and Allotment of Securities) Rules ,file  FORM PAS-3 within 30 days of allotment of shares along with certified true copy of board resolution for allotment of shares and list of allottees.
•  Issue of share within 2 months from date of allotment authorised by two directors

NOTE:- 

• THE SHAREHOLDERS SHALL HAVE THE RIGHT TO RENOUNCE THE SHARES IN FAVOUR OF ANY OTHER PERSON UNLESS OTHERWISE PROVIDED BY THE ARTICLES OF ASSOCIATION AND SUCH RIGHT IS TO BE MENTIONED IN THE LETTER OF OFFER.
• IF THE SHAREHOLDER DECLINES TO ACCEPT THE OFFER THEN THE BOARD OF DIRECTORS CAN DISPOSE THE SHARES IN A MANNER WHICH IS NOT DISADVANTAGEOUS TO THE COMPANY OR THE SHAREHOLDERS.

EXCEPTION TO RIGHT ISSUE
If the company’s capital increased due to exercising the option of converting debentures or term loan into shares then that will not consider as right issue.

SEBI REGULATIONS (LISTED COMPANIES)

Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,2009 are need to complied with if the amount of right issue of a listed company exceeds 50 lakh.


Compiled and Edited by Mansi Bansal
Management Trainee,Compliance Chambers