Procedures under Companies Act, 2013

Right Issue of Equity Shares by a Company

In accordance with the provisions of clause (a) sub-section (1) of Section 62, 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.

Key Considerations:

  • Right issue means offer of shares to the equity shareholders of the Company, as on the date of offer, in proportion to the capital paid up on their shares. (Section 62(1)(a)
  • Shares shall be offered on rights basis by sending a letter of offer fulfilling the prescribed conditions. (Section 62(1)(a)
  • Unless the articles of the company otherwise provide, the offer of rights issue shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person.
  • Board Resolution for considering the issue of shares on rights basis cannot be passed by circulation. (S.179 (3)(c).

The following procedure is to be followed for Rights Issue of Shares by a Company under Section 62 -

1. Check whether the share capital as increased by the proposed right issue will be within the total authorized share capital of the Company. If not, necessary steps have to be taken to increase the authorized share capital of the company. [Pl. Refer Procedure for Increasing Authorized Share Capital of Company]

2. Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting to consider the proposal for rights issue of shares and and approving the issue price of shares. (Section 173(3). Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

3. Hold a meeting of the Board of Directors-

  • To pass the necessary Board Resolution for determining number of shares to be offered on rights basis, issue price and the list of equity shareholders to whom shares are to be offered on rights basis.
  • To approve a draft letter of offer.
  • To approve a draft of share application form and Renunciation Letter
  • To authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Boards decision
  • To authorize Company Secretary or other officer to send the letter of offer to the members and to do such acts, deeds and things as may be necessary to give effect to the Boards decision.

4. Letter of offer shall specify the following:

a) number of shares offered;

b) offer period of right issue. (Offer period shall be between 15-30 days and the offer letter shall be dispatched at least three days before opening of the issue. In case of private company, if ninety percent of the members have given their consent in writing or in electronic mode, the periods lesser than those specified above shall apply.)

c) if the offer is not accepted within the offer period, it shall be deemed to have been declined

d) if AOA does not provide otherwise. statement of the right exercisable by the person to whom share are offered that he may renounce the shares offered to him or any of them in favour of any other person,;

5. Dispatch the letter of offer to all the existing equity shareholders accompanied by the application form and draft renunciation letter. The letter of offer shall be dispatched through registered post or speed post or through electronic mode.

6. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

7. In case of public company, file a certified copy of the Board Resolution for issue of Equity Shares on rights basis with the Registrar in E-Form No. MGT.14, as required under provisions of Section 179(3) read with Section 117 of the Act along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 within 30 days of passing Resolution in Board Meeting.

8. After the expiry of the time specified in the notice or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner as they deem fit but which is not disadvantageous to the shareholders and the company. [Section 62(1)(a)(iii)] [The Articles of Association needs to be checked for any Shareholders Agreement entered into by the Company, for any special clause or restriction on disposal of shares.]

9. After the expiry of offer period, issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting to consider the proposal for allotment of shares. (Section 173(3). Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

10. Hold a meeting of the Board of Directors-

  • To pass the necessary Board Resolution for approving the allotment of shares, to applicants from whom share application money, share application forms and renunciation letters from existing members, if applicable in respect of the above mentioned shares have been received.
  • To authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds and things as may be necessary to give effect to the Boards decision
  • To authorize Directors and Company Secretary/any other person to sign and issue the share certificate to the allottees.
  • To consider the manner of disposal of unsubscribed shares, if any

11. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

12. File a return of allotment in E-Form No. PAS-3 with the Registrar along with the fee as specified in the Companies (Registration Offices and Fees) Rules, 2014 within 30 days of allotment of shares by the company having a share capital. [Section 39(4) and Rule No. 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 along with the following attachments:

  • List of Allottees stating their names, address, occupation, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company
  • Copy of Board Resolution approving the allotment of shares
  • Any other attachment as may be applicable.

13. In case the shares are held in demat form, the company shall intimate the details of allotment of securities to the depository immediately on allotment of such securities. (Proviso to Section 56(4)).

14. If the shares are held in physical form,issue share certificates in Form No. SH-1 or as near thereto as possible to the Allottees and deliver the Share Certificates within a period of two months from the date of Allotment. [Section 56(4)(b)]

15. Complete other formalities such as refund of excess application money etc.

16. Share certificate may be issued under the seal of the Company, if any which shall be affixed in the presence of, and signed by:

  • (a) two directors duly authorized by the Board of Directors or the committee of the Board, if so authorized by the Board; and
  • (b) the secretary or any person authorised by the Board.

In case the company does not have a common seal, the share certificate shall be signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary.

If the composition of the Board permits, at least one of the aforesaid two directors shall be a person other than the managing or whole-time director.

Further, in case of a One Person Company, Share certificate may be issued under the seal of the Company, if any which shall be affixed in the presence of, and signed by one director or a person authorized by the Board of Directors and the Company Secretary, or any other person authorized by the Board. (Rule 5(3) of Companies (Share Capital and Debentures) Rules, 2014

17. Pay the requisite stamp duty on the share certificates in accordance with the provisions of the Indian Stamp Act.

18. Make necessary entries in the Register of Members and Register of Directors and key managerial personnel and their shareholding, if applicable. (Rule 5(4) of Companies (Share Capital and Debentures) Rules, 2014

Notes:

1. Where any instrument of transfer of shares has been delivered to any company for registration and the transfer has not been registered by the company, the company shall keep in abeyance issue of right shares in relation to such shares. [Section 126]

Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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