Right issue is a tool for businesses to raise funds without surging the owners of the company and giving opportunities to the existing shareholders to invest more and induce more capital in the company.

To combat the drawback of increasing the shareholders, a concept is developed to issue shares to the existing members of company in the name of Right Issue which is governed under Section 62 Of Companies Act,2013

In this Article we will discuss provisions related to Right Issue.

Categories of Person to whom Company can Make Right Issue:-

Where a company proposes to issue shares it can make an offer to :-

(a) existing shareholders of company by sending Letter of offer subject to following conditions:-

• notice shall specify the number of shares offered and the offer period shall not be less than 15 days but not exceeding 30 days.
• the notice shall also contain a right exercisable by the person to transfer the right of shares in favour of any other person, unless AOA specifies differently
• if the person concerned doesn’t accept the offer the board may dispose of them in such a way which is favourable to shareholders

(b) employees by passing SR (OR in case of Private company) which is also known as ESOP.

(c) to any other person by passing SR which is also known as Preferential Issue.

Procedure for the Right Issue

1. Send notice of Board Meeting.
2. Hold Board Meeting and Identify number of shares to be issued and pass Board Resolution for approval of letter of offer.
3. Send a letter of offer through notice which shall be dispatched through Registered post OR Speed post OR Courier OR Electronic mode atleast 3 days before Subscription period.
4. Subscription period should not be less than 15 days but not more than 30 days.
5. File MGT-14 within 30 days of passing Board Resolution.
6. Accept application money and convene Board meeting for allotment of shares.
7. File PAS-3 within 30 days of allotment of shares.
8. Issue share certificate within 2 months of allotment.

Effect of Covid-19– MCA Clarification

Ministry of Corporate Affairs (MCA) vide circular dated 11.05.2020 have clarified that amid of ongoing situation in the country due to covid-19 requirements of sending notice through postal service or courier or registered post are done away with for issues upto 31st July, 2020 for Listed Companies.

Right issue is the best form for raising capital from existing shareholders of the company.

For any further queries or requirements contact

Team
Compliance Arena
info@compliancearena.in
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