What is the Right issue of shares?

As per section 62(1) (a) of the Companies Act, 2013, the Right issue of shares refers to the issuance of shares by the Company to its existing shareholders in proportionate to their existing shareholding.

It is an easy and simple way to raise funds by Company, Under the Right issue of shares, the existing shareholders of the Company having Pre-Emptive Rights, according they have preference for subscribing the Right shares instead to an outsider.


Step: 1 Draft “Letter of Offer” for the Right Issue of shares along with application form and renunciation form.
Step:2 Sent Board Meeting Notice-Seven days prior to the Board Meeting
Step:3 Conduct a Board Meeting and Pass “Board Resolution” for the following matters
  • Issue of shares under Right issue basis to the existing shareholders of the Company;
  • Approve Letter of offer;
  • Fix the Record Date; Price of the equity shares,

Step:4 File e-form MGT-14 with ROC; within 30 days from the date of passing of Resolution.(For private Company there is no requirement to file this form).

Step:5 After completing of the time period of the letter of offer make a list of shareholders;

-Who subscribed the offered shares;

-Who renounce the shares in favour of the third person;

-Who subscriRight issue of shares under Companies Act, 2013Rights issue allotmentbed the shares in excess.

Step:6 Arrangement to be made for the receipt of the Share application money from the shareholder, who subscribed to the offered shares.
Step:7 Allotment of shares to be made, within 60 days from the date of receipt of the fund; otherwise, make a refund.
Step:8 Issue of share Certificate in form SH-; within 30 days from the date of allotment of shares.
Step:9 File e-form PAS-3 along with the attachments- Board Resolution for allotment of shares and List of Allottees.
Step:10 Make necessary entries in the Register of Member-(MGT-1).

For more Understanding about the concept of the Right issue of shares; PLEASE REFER FAQ’S AS GIVEN BELOW:

Question-1 Which section and rule are Applicable under the Right Issue of Shares?

Answer- Section 62(1) (a) read with Rule 12 and Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014.

Question-2 To whom the Right issue of shares shall be issued?

Answer- As on record date (i.e., it is to be decided by the Board of directors), holders of equity shares and whose name is entered in the Register of members (MGT-1), only to that person shares shall be issued through Right Issue. Generally, the record date shall be the date of the offer is sent.

Question-3 What type of shares covered under the Right issue of shares?

Answer- As per section 62 of the Companies Act, 2013, Shares or other securities referred to equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date.

Question-4 What is letter of offer?

Answer- Letter of offer refers to a notice, which is to be sent to the existing shareholders of the Company, at least three days prior to the opening of the time period of letter of offer, by notice specifying number of shares offered.

Letter of offer shall deemed to include a right exercisable by the person concerned to renounce* the shares offered to him or any of them in favour of any other person.

Question-5 Time Limit to open Letter of Offer?

Answer The letter of offer shall be open Minimum for 15 days; and Maximum for 30 days;

That means, if any shareholder wants to subscribe the offered shares, has to fill the Application form and sent it to the Company within the aforesaid period, otherwise the offer deemed to be declined and the Board of directors may dispose of the offered shares in such manner which is not disadvantageous to the shareholders and the Company.

Please Note:  In the case of a Private Company, the letter of offer can be open for a lesser period, if 90% of the members of a Private Company give their consent in writing or in electronic mode.

Question-6 What happens if shares are not fully subscribed of the Private Company?

Answer- The unsubscribed portion of shares may be disposed of by the Board of directors of the Private Company.

Question-7 What is renunciation of shares?

Answer– The right to subscribe the shares in a company assigned to the third person. In other words, if any shareholders transfer his right to subscribe the offered shares to a third person is known as a renunciation of shares.

Question-8 Can share be issued at premium/ Discount?

Answer– As per Section 62 (1), Shares can be issued only at Face Value or at Premium.

Question-9 Is Valuation Report Required for the shares issued at Premium?

Answer- Not Required, as per Companies Act, 2013.

Question-10 Is a Separate Bank Account required to be opened for receipt of money under the Right Issue of shares?

Answer-As per the Companies Act, 2013, there is no legal requirement for the opening of separate Bank Account for the receipt of funds.

Thanks & Best Regards
CS Riya Khurana
Contact No.: 8810649870

Cs Riya Khurana

Cs Riya Khurana