Right Issue of Shares under the Companies Act, 2013
As per Section 62(1)(a) of the Companies Act, 2013, if the Company decides to issue Right shares, these should be offered to existing shareholders in proportion to their existing share holding. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts.
Object of Rights Issue
The object is to ensure equitable distribution of shares and the proportion of voting rights is not affected by issue of fresh shares.
Applicability
Provisions of Section 62 of the Companies Act, 2013 are mandatory for all Private companies, Public companies and listed as well as Unlisted companies.
PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT ISSUE BASIS:
- Prepare the DRAFT OFFER LETTER for Right issue of shares.
- Issue notice in writing to every Director at least seven days’ before convening the Board meeting [Sec 173 (3)] for issue of Right shares.
- Convene a Board Meeting and pass a board resolution for issuing “Letter of offer” including right of renunciation in the same. Also authorize a Director of a company to issue “Letter of offer”.
- Dispatch “Letter of offer” to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue. In case of Private companies, if ninety percent of the members of company give their consent in writing or in electronic mode, the time limit of three days before the opening of the issue shall not apply (as per Exemption Notification dated June 5, 2015).
- Receive acceptance, renunciations, rejection of rights from shareholders.
- Once Company received money from all the allottees, then it is required to allot shares within 60 days of receipt of application money.
- Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]
- Convene a Board Meeting and present a list of allottees before the meeting.
- Pass Board resolutions regarding :
1. Approval for allotment and issue of share certificates.
2. Authorize a director to file E-form PAS 3 (Return of Allotment) to ROC within 30 days of passing of resolution.
3. Authorize a director to file E-form MGT 14 for issue of share certificate within 30 days of passing of resolution (Not applicable in case of Private companies as per Exemption Notification dated June 5, 2015).
- File E Form PAS 3 (Return of Allotment) to ROC for allotment of shares.
Attach following documents along with the E Form PAS-3:
- Board resolution for allotment and issue of shares
- Letter of Offer
- List of Allottees
- Issue share certificates within 2 months from the date of allotment of shares. (Refer SH-1 Form)
Other Information
1. Attach list of allottees in form PAS-3 mentioning therein – 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.
2. Make Allotment of shares within 60 days of receiving of Application Money; otherwise it will be treated as deposits as per deposits rules.
3. Letter of offer shall specify the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
4. Unless the articles of the company otherwise provide, in the case, where existing shareholders do not accept the offer or renounce, the directors should dispose of such shares in a manner “non dis-advantageous” to the shareholders and the company.
5. Section 23(2) of the Companies Act, 2013 clearly states that issue of prospectus is not necessary in right issue whether with or without right of renouncement.
Post written by CA Jyoti Singhal.
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