‘Right Issue’ means offering shares to existing members in proportion to their existing shareholding. The object is, of course, to ensure equitable distribution of Shares and the proportion of voting rights is not affected by issue of Fresh shares.
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
Section 62 of the Companies Act, 2013, deals with further issue of capital and prescribes the principle of pre-emptive right of shareholders to subscribe to the rights shares. Shares offered to the existing shareholders are called ‘right shares’. The issue of the letter of offer accompanied by the application form indicating there in the number of shares offered for subscription is an offer from the company making the Right Issue.
Checking points:-
That every unlisted public company making any offer for issue of any securities, before making such offer has dematerialized of its securities held by its promoters, directors, key managerial personnel in accordance with provisions of the Depositories Act, 1996 and regulations made thereunder.
That any person who subscribes any securities has dematerialized his all existing securities of the company before such subscription.
Whether the authorized share capital is sufficient for issue of shares through right issue and if authorized capital is not enough, then first alter the capital clause of the memorandum of association of the company.
Whether articles of association authorise for issue of shares through right issue and if not, then first alter the articles of association to include provisions for issue of shares through right issue.
That shares are offered to persons, who at the date of the offer, are equity shareholders of the Company, in proportion to the paid-up share capital on those shares.