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Rights Issue Of Shares By Private Company

A company can issue of new shares to existing shareholders or other persons subject to the Companies Act and Articles of the company. Company has to follow the procedure for rights issue of shares to the existing shareholders.

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Overview – Rights Issue of Shares by Private Company

Company issue additional capital shall offer the shares to existing shareholders in the ratio of their holding as right shares. The process of issue of right shares can be in premium or par

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Company propose to raise capital by issue of shares shall offering shares to existing members in proportion to their existing share holding. The object is to ensure equitable distribution of Shares and the proportion of voting rights is not affected by issue of Fresh shares.

The existing shareholder getting right can have the option to assign such right to other person or can waived or modified the right. Once he/she exercise right, he/she can’t modify the right and board of director decide how to proceed. 

Company by passing a special resolution in General Meeting can alter this right and can offer share to anyone including existing shareholders. 

Who need this service?

Any company planning to issue shares to existing shareholders at premium can opt this service. The service have two part;

a. Offer of shares to existing shareholders

b. Issue of shares

Rights Issue of Shares by Private Company – Requirements


Offer for issue of shares

 

Issue shares

 

Filing with Registrar

 

Issue of share certificate

 

Process for Rights Issue of Shares


Call Board Meeting for Offer of shares.

The first step for issue of share at premium is call board meeting for issue of shares. At the meeting fix price and number of shares to be issued, offer date, closing date etc.

Sent Offer letter to shareholders and collect Application

After the Board meeting dispatch offer letter with application to existing shareholders. Collect all application within the offer period and make a list of proposed allottees.

Issue of Shares

Call board meeting for issue of shares and at the meeting pass resolution for issue of shares to eligible applicants.

File Return of Allotment with MCA

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

Issue of share certificate

After allotment issue share certificate to existing allottees and make necessary entries in members register.

Documents Required


Filled application signed by shareholders/renouncee with renunciation letter if application. Also collect PAN and other information for making entries in the members register

List of Documents

  1. Application for Issue of shares
  2. PAN Card Copy

Rights Issue of Shares


Application to Subscribe right shares

Existing shareholders and renouncee can apply for shares after fulfilling terms and conditions of the offer letter.

Board meeting – Issue of Right shares

Company shall call a board meeting for approval of right issue of shares. In the board meeting necessary resolution shall be passed

Filing of return of allotement

After share are issued, company must file return of allotment in PAS-3 within 30 days from the date of issue of shares.

What is Right Issue of Shares?
Issue of shares to existing shareholders in the ratio of their holding is called as right issue
What is Premium Offer?
Issue of shares at a price above the face value of share is called premium offer. For example if the face value of share is Rs.10 and is offered for Rs.20, then Rs.10 is premium.
Whether Share Valuation Required?
No such requirement in Companies Act. But if shares are offered at premium Merchant Banker valuation is mandated under Income tax Act
What will happen if shares issued without valuation?
Under Companies Act, 2013 no such requirements. But Income Tax act mandates to have valuation by Merchant Banker. If shares are issue without valuation, the share premium may be classified as Income and tax will apply on company (Angel Tax) if issue of shares is to Indian shareholders.
What happen if shares are not fully subscribed?
Private company have the authority to dispose unsubscribed shares to any person at the discretion of Board
Who can issue new shares?
The Board of Directors of a company can issued shares subject to the articles of the company.
Can shares be issued at a premium/discount?
The company can issue new share issues at face value or at a premium. There are no regulations for determining the amount of premium for the issue of shares. The company can not issue shares at a discount except for sweat equity shares.
What is share certificate?
Share certificate is the proof of shareholding in a company. It is mandatory for a company to issue share certificates to every shareholder after the issue of shares.
Who issues the share certificate and how?
The Board of Directors are empowered to issue share certificates. A share certificate is issued under the authority of board resolution with the common seal of the company (If any) and is required to be signed by two directors and an authorized signatory. Stamp duty is to be paid on the share certificate according to the respective state stamp rules.
Who can sign share certificates?
Share certificates should be signed by two directors and secretary/authorized person. If the company has a managing director, he/she must be one of the signatories to the certificate.

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