right of equity shares

7/27/2019 right of equity shares

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Submitted by:

Alekha MittalClass : SyBBI (4th sem.)Roll no. 28.

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Shares.

Placement of Issue.

Right issue of shares.

a. Reasons for right issue.

b. Procedures.

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When the entire capital is divided into number of smallerunits having fixed face value , then such unit is known as

share.

According to sec2(46) of the Indian Contract Act 1956,

shares means share in the share capital of the companyand includes stock except where distinction between stock

and share is expressed and implied.

The Companies Act 1956, mentions only 2 kind of shares:

Equity shares .

Preference shares.

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Offer through prospectus

Offer for sale

Private placement

Book building

Right issue

Red herring prospectus

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A company always needs funds for its operations and for the

fulfillment of this need securities are issued. And

whenever company needs further capital then it has to

further issue those securities to its existing shareholders n

then it can issue them to general public. This right to existing

shareholders is known as right issue. These new shares are

issued to the existing shareholders as the matter of their

pre-emptive right. Shares issued by the company under

such right is known as right shares.

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Section 81 of the Companies Act dealing with Right Issue, provides that whenevera company proposes to increase its subscribed capital by allotment of further shares

any time after the expiry of two years of its formation or any time after the expiry ofone year from the first allotment of shares whichever is earlier, then Such further shares (i.e., new shares) must be offered to the existing

shareholders of the company. The company sends a letter of offer to the existingshareholders whose name appears on the register of members mentioning

therein the number of shares to which they are entitled to in proportion to theirold shareholdings.

Periods of Rights offer:The offer is to be made giving a notice specifying the number of shares offered.

The notice must fix a time, which should not be less that 15 days from the date ofthe offer within which the offer must be accepted. The notice must also informthe shareholder that if the offer is not accepted within the specified time it shallbe deemed to have been declined.

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Right to renounce:The equity shareholders have right to renounce all or any shares offered

to him in favor of their nominee(s). Shareholders shall inform to thecompany within the stipulated period of their acceptance of right or thename of the nominee to whom they want to renounce their right.

Application to Additional shares:An existing shareholders may apply for additional shares but ashareholder who has renounced his right in favor of any person is notentitled to apply for additional shares.

Distribution of shares:Shares on becoming available on account of non-exercise of rights are

allotted to shareholders who have applied for additional shares pro ratabasis. Any balance of shares left after issuing, the additional shares canbe sold in the open market at the market price or the issue pricewhichever is higher.

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Four forms may be sent along with letter of rightsForm A: is intended for accepting the rights and applying for additional sharesForm B: is meant for purpose of renouncing the rights in favor of other person.

Form C: has to be used by the person in whose favor the rights have been renounced formaking application.Form D: is for the purpose of requesting for the split forms, for eg: 50% accepted and50% rejected.

Letter of Rights:

Form A:

Accepting therights andapplying the

additionalshares.

Form B:

For renouncingthe rights infavor of other

person.

Form C:

Used by theperson in whosefavor rights have

been renouncedfor makingapplication

Form D:

For requestingsplit forms .

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right of equity shares

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