Procedure for Rights Issue of Shares in India – What are the Steps in Issue of Shares?

Rights Issue of Shares under Companies Act 2013

Rights issue or Rights Offer refers to buying the existing shares of a company at a discounted price on a specific ratio. The rights issue is a security issued by a company to its existing shareholders on a fixed date (i.e. record date).
During a liquidity crisis, a company calls existing shareholders for additional funds in exchange for an issue of shares.
This article will discuss the step by step procedure for Rights Issue of Shares(RI) under Section 62(1) of the Companies act, 2013.
The Key Highlights for Right Issue of shares are as follows:

Also Read What is a Rights Issue of Shares? | Rights and Bonus Issue | Example | Eligibility | Types

Key Highlights of Right Issue of Shares

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  • The rights share is basically the method thru which a company raises additional funds. However, rights share is an invitation to existing shareholders to buy additional new shares in the company.
  • There are two types of rights issue of shares, which are as follows:
    1. Renounceable
    2. Non-Renounceable
  • The Rights share is done by sending a letter of offer to the existing shareholders of the Company.
    However, shareholders can also download the request form from the web sites of exchange/company/registrar.
  • The notice of the rights share will be sent to the shareholders by offering them an option to take the shares offered to them. After that, shareholders will answer the notice within 30 days.
  • There are three choices shareholder can make –
    1. Fully or Partially Subscribe.
    2. Sell Rights Share.
    3. No Action
  • There are three approaches to apply for these rights – Two are online (ASBA Facility and RWAP facility) and one is an offline approach.
  • Rights shares can have significant impact on share prices and trading activity in a firm’s security on the day of the announcement.
  • The right issue applies to all types of Companies (i.e. Listed Public Company, Public Company, and Private Company).
  • NRI can apply in the Rights share on a paper format, available in the offer document but with by providing an Indian Address.
  • You can learn more about Rights issue of share, refer to this chapter on Varsity.

Also Read How to Apply for Rights Issue through Online? – Bank or Demat a/c or RTA Website

Procedure for Rights Issue of Shares in India

The procedure for rights issue is as follows

  1. The First Meeting of Board of Directors

    The notice of the Board Meeting should be sent to the shareholders 7 days before the date of the Board Meeting, As per Section 179 (3) of the Companies Act, 2013.

    Procedure for Rights Issue of Shares in India

  2. Secretarial Standard-1

    As per the Secretarial Standard-1, In the board meeting the resolution needs to be passed for the following purposes:
    Firstly, For approving the offer letter to issue shares on the basis of the rights.
    Secondly, For fixing the date, price of the shares and ratio on which the rights issue will be given.
    Thirdly, and most importantly, For right issue shares to the existing shareholders.

    Procedure for Rights Issue

  3. Sent Offer Letter to Shareholders

    The letter of offer is needed be sent to all the existing shareholders via registered post or any other mode having proof of delivery to all the existing shareholders at least 3 days before the opening of the rights offer.

    Sent Offer Letter to Shareholders

  4. Time duration for opening the Subscription

    The rights offer shall remain valid for a minimum of 15 days and a maximum of 30 days for the subscription.

    Time duration for opening the Subscription

  5. The Second Meeting

    After receiving application money, call board meeting for issue of shares and at the meeting pass resolution for issue of shares to eligible applicants.

    The Second Meeting

  6. MGT-1 for Public Company only

    MGT-1 is required to be filed within an interval of 30 days from the date of passing the Board Resolution.

  7. File Return of Allotment

    After board meeting file return of allotment in PAS-3 with respective registrar of companies.

  8. Certificate

    After allotment issue share certificate to existing shareholders and make required entries in members register.

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Company NameProportionRecord DateEx Rights DatePremium()Offer Price ()
Vikas EcoTech13:1010-Jun-202109-Jun-20210.35NA
Aplab1:108-Jun-202107-Jun-20210.0010.00
Vikas Lifecare2:521-May-202120-May-20210.851.85
Sundaram Fin. Hold23:4927-Apr-202126-Apr-202145.0050.00
KDDL7:7531-Mar-202130-Mar-2021220.00230.00
INDIGRID1:530-Mar-202126-Mar-202110.00110.00
WEP Solutions3:812-Mar-202110-Mar-20210.0010.00
Rajapalayam Mills1:605-Mar-202104-Mar-2021559.00569.00
Arvind Fashions3:2024-Feb-202123-Feb-2021131.00135.00
Source – FinancialExpress.com

Also Read Rights Issue Advantages and Disadvantages – Is Rights Issue Good or Bad in 2021?

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