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Right Issue of Shares under Companies Act

Right Issue of Shares under Companies Act

Right Issue of Shares under Companies ActRight Issue of Shares under Companies Act

The right issue of shares is defined under section 62 of the Companies Act, 2013 which is applicable to private companies, public companies, listed and unlisted companies.

Right shares mean the shares where the right to subscribe to the shares is available only to the existing shareholders. Rights shares are usually issued at a value less than the prevailing market price.

Some of the possible reasons for the right issue

  • To raise the amount of capital for expansion of business projects
  • To improve the debt to equity ratio 
  • To pay off the debt to ease the financial stress

Steps elaborated for private companies

  1. Issue the notice of the board meeting at least 7 days before the meeting under section 173 (3) of the companies act 2013.
  2. Hold the board meeting and pass a resolution for issuing a “Letter of Offer” which includes the right of renunciation.
  3. The offer shall remain valid for a minimum of 15 days and a maximum of 30 days.
  4. But in the case of a private company offer can be kept open for less than 15 days provided 90% consent of the members is given.
  5. Send the letter of offer to the existing shareholders either by registered post or speed post or through any electronic mode.
  6. Accept the application money from the subscribers.
  7. On the receipt of application, money hold the second board meeting. 
  8. Issue the notice of the board meeting at least 7 days before the meeting.
  9. Hold the board meeting prepares the list of allottees and pass the resolution for the allotment of shares.
  10. File form PAS-3 with the registrar within a period of 30 days from the date of allotment.(Attachments are certified true copy of the board resolution and list of allottees)
  11. Issue of share certificate in format SH-1 and must be signed by two directors and one authorized representative. The time for issuance is 2 months from the allotment.
  12. The register of members shall be duly updated after allotment.

Steps Elaborated for unlisted public companies

  1. Issue the board meeting notice at least 7 days before the meeting under section 173 (3) of companies act 2013.
  2. Hold the board meeting and pass a resolution for issuing a “Letter of the offer” which includes the right of renunciation.
  3. Send the letter of offer to all the existing shareholders via registered post or speed post or through electronic mode.
  4. The letter of offer must be provided at least 3 days before the date of opening of the issue.
  5. The offer shall remain valid for a minimum of 15 days and a maximum of 30 days.
  6. File MGT-14 with the registrar within a period of 30 days from the date of passing board resolution.
  7. Accept the application money from the subscribers.
  8. Issue the notice of the board meeting at least 7 days before the meeting.
  9. Hold the board meeting for preparing the list of allottees and pass the resolution for the allotment of shares.
  10. File Form PAS-3 with the registrar within a period of 30 days from the date of allotment. (Attachments are certified true copy of the board resolution and list of allottees)
  11. Issue the share certificate in SH-1 within a period of 2 months from the date of allotment. It must be signed by two directors and one authorized representative.
  12. Get the share stamping done within a period of 30 days from the date of issue
  13. Register of members shall be duly updated after allotment

Unless the articles of association provide otherwise right of renunciation is available to the shareholders which means they can renounce their right either completely or in part.

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11 Mar

NeuSource Startup
Akash Rai

"Any time is a good time to start a company.” Neusource indulge in providing business consultancy services which help startups to accomplish their desired results as a TAJ EXPRESS. If you’re passionate about something and you work hard, then neusource is the right choice for you.

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