As we all know, that the company needs funds for its expansion or diversification. Do we ever wonder, from where the company is infusing the funds so as to expand or diversify its business more? Thus, A company has two options to raise funds, one is through issue of Debentures and another is through fresh issue of shares (Rights Issue of Shares). Issue of debentures brings liability on the company, as debentures needs to be paid off even when the company does not have much funds itself. But, in case of Right issue of Shares, the funds are raised from the existing shareholders of the company. They are the owners of the company. Thus, the money to them is to repaid only at the time of winding up of the company.
Right issue of shares is governed by Section 62 of the Companies Act, 2013 read with rules 13 of Companies (Share Capital and Debenture Rules), 2014. Right issue means it is the pre-emptive right of the existing shareholders, to get the option to subscribe, whenever the company is making fresh issue of shares. Further, if any of the shareholder doesn’t want to take the shares offered, he can renounce the shares in favor of some other person.
Any Company be it private, public, listed or unlisted can make right issue of shares. If a public company makes right issue of shares, then along with Companies Act, 2013, the Public Companies needs to follow SEBI (Issue of Capital and Disclosure Requirements), Regulations 2018 or as amended from time to time.
PROCEDURE FOR RIGHT ISSUE OF SHARES OF A PRIVATE LIMITED COMPANY:
Board Resolution For Offer Letter for Rights Issue
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CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF___________ PRIVATE LIMITED HELD ON ________________ AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT ___________________
The Chairman informed the Board that it was proposed to offer Rights Shares to the existing shareholders of the Company, to meet the capital requirement of the Company, for future expansion and growth. The Chairman further informed the Board that it was proposed to offer _____________ (____________only) Equity Shares of Rs. 10/- (Rupees ten only) each, at a premium of `__________/- (Rupees _____________ only) per share to the existing shareholders in proportion to their existing shareholding as on date.
Further, the draft Letter of Offer was placed before the Board for its perusal. After a brief discussion, the Board passed the following resolutions:
“RESOLVED THAT pursuant to the provisions of Section 62 of the Companies Act, 2013 and the relevant Rules and Regulations made there under, approval of the Board be and is hereby accorded for offering _________________( ___________ only) Equity Shares of `_________./- (Rupees ten only) each, at a premium of `______________/- (Rupees _______________only) per share, to the existing shareholders of the Company, in proportion of their existing holding as on the date.”
“RESOLVED FURTHER THAT the draft Letter of Offer as placed before the Board for offering the above said Rights Shares, be and is hereby approved.”
“RESOLVED FURTHER THAT ___________ or _____________ Directors of the Company or Mr./Ms. _______________, Company Secretary of the Company, be and are hereby severally authorized to sign and issue the Letter of Offer to the existing shareholders of the Company and to complete all the procedures with respect to the rights issue and allotment of shares.”
“RESOLVED FURTHER THAT ______________. or Mr_____________ Directors of the Company or Mr./Ms. _____________, Company Secretary of the Company, be and are hereby severally authorized to sign and file necessary e-forms with Registrar of Companies-_______________ as may be necessary in this regard.”
CERTIFIED TRUE COPY
M/S. __________ PRIVATE LIMITED
CIN:__________________
PLACE:__________
DATE____________
DIRECTOR
DIN: ___________
Annexure-A
NOTICE / LETTER OF OFFER
Date: ________________
Sub: Issue upto Rs._______________ (______________________________________) Equity Shares of Rs. _____ (Rupees _____) each for cash, aggregating to Rs. ___________ (Rupees _______________________________________ Only) on right issue basis to the existing shareholders of the Company
Dear Shareholder(s),
You are hereby informed that the Board of Directors has decided to increase the subscribed and paid-up capital of the Company by issue and allot up to _______________ Equity Shares of Rs. _____/- each fully paid-up on right basis to existing equity shareholders of the Company as on ………………… on proportionate basis in the ratio of 2 Equity Shares for every 1 Equity Shares held by the existing shareholders on the date of this offer as per the detailed terms and conditions as mentioned, inter alia hereunder:
As a shareholder on the aforementioned date, we are pleased to inform you that you are entitled to for the “rights shares offer” in reference to details as mentioned in the enclosed application form.
PRINCIPAL TERMS AND CONDITIONS
1. Object of Offer: Your Company is generating internal funds by way of increase in paid up capital of the Company for the development of solar power project in the state of Andhra Pradesh.
2. Mode of Allotment: Shares will be issued in physical form.
3. Face Value: The new equity share shall be of a face value of Rs. ____/- each.
4. Number of Shares: The number of shares under the offer is ____________ Equity shares
5. Offer Price: The offer price is Rs. _____/- per share
6. Present Shareholding Pattern and number of shares offered to shareholders under this offer
| Name & address of Shareholders | Pre issue Shareholding pattern (No. of shares) | Pre issue shares Percentage | Proposed Rights Issue (No. of shares) | Post Rights issue (No. of shares) |
| …………….. | …………. | ………….. | …………….. | …………… |
| …………….. | …………. | ……….. | ………….. | …………….. |
| Total | …………… | ……………….. |
7. Terms of payment: The full amount of Rs. ____/- per share shall be payable on application.
8. Mode of Payment: Normal Banking Channel
9. The new shares shall rank pari-passu with the existing equity shares of the Company.
10. Acceptance of Offer: You may accept and apply for the equity shares hereby offered to you wholly or in part by filling up the enclosed Application Form and submitting the same to the Company at its registered office address from the opening of the offer on __________ but on or before the close of offer on ____________.
However, if the Consent of not less than 90% of members is received for opening of offer for a period lesser than the above-mentioned period, the offer may be open for that shorter period also and will be closed accordingly.
The application must be only on the prescribed form enclosed and marked as ‘Form – A’. As stated above, you may apply for additional shares if in first instance you have subscribed to all the shares offered to you.
The Board may extend the last date for receipt of the application form by such period as it may deem fit or to close the offer upon full subscription but not exceeding a maximum period of thirty days from the date of opening of this offer.
11. Disposal of unsubscribed shares: If the duly filled Application form along-with the application money is not received by the Company or its bankers before the close of banking hours on or before _____________ or extended date, if any, then this offer shall be deemed to have been declined and the Board may dispose off the unsubscribed shares in such manner as it thinks fit.
12. Renunciation: This offer carries the right of renunciation. The rights offer of shares can be renounced, wholly or in part, in favour of any other person(s). This right of renunciation is subject to the express condition that the Board shall be entitled in its absolute discretion to reject the request for allotment from the renounce(s) in case the renouncee is not an existing shareholder, without assigning any reason thereof. The shareholders can renounce their rights entitlement of shares by signing the enclosed ‘Form – B’ – Form of Renunciation. Renouncee shall have the right to apply for additional shares.
13. Basis of Allotment: The basis of allotment shall be finalised by the Board in the following order of priority:
i. Full allotment to the shareholder applied for rights entitlement either in full or in part.
ii. Shares applied based on the renunciation in favour of shareholder by other shareholder
iii. Allotment to the shareholders who have applied for additional shares, provided that they have applied for all the shares offered to them and there are surplus shares.
iii. Allotment of equity shares to any other person as the Board may in their absolute discretion, deem fit, provided there is surplus available after allotment under i. and ii. above
14. Applicable Law: Section 62(1)(a) of the Companies Act, 2013 and rules made there under
15. Allotment and refund orders: The Company will allot the Equity Shares within 60 days from the date of receipt of application money and will issue Share Certificates within 2 months of allotment of Equity Shares.
Company will issue letters of regret along with refund orders, if any, within a period of 15 days from the date of completion of 60 days of receipt of share application money.
DECLARATION
NO STATEMENT MADE IN THIS LETTER OF OFFER CONTRAVENES ANY OF THE PROVISIONS OF THE INDIAN COMPANIES ACT, 2013 AND THE RULES MADE THEREUNDER. ALL LEGAL REQUIREMENT CONNECTED WITH THE SAID ISSUE HAVE BEEN DULY COMPLIED WITH.
Yours,
By order of the Board
For ………………….. PRIVATE LIMITED
Place: ________________
Date: ______________
Director
DIN: ………………..
Address: ……………….,
Enclosure:
1. Application Form
2. Renunciation Form
3. Application Form for Renounced Shares
FORM ‘A’ – APPLICATION FORM
Rights Issue of _______________ Equity Shares of Rs. ___ each to the existing shareholders whose name appeared in the Register of Members on _______________
Dated: ________
The Board of Directors
………………….. Private Limited
Plot No. ……….. ………
Phase- ……………….
Dear Sir,
I/We, __________________________________________ apply for allotment of Equity shares indicated below in response to your letter of Rights Offer dated ______________ and subject to the Memorandum and Articles of Association of the Company. I/ We hereby agree to accept the shares as may be allotted to me on the terms laid down in the letter of offer.
| Name | |
| Address | |
| Folio Number | |
| No. of shares held | |
| No. of shares offered | |
| No. of shares applied for | |
| No. of additional shares applied for | |
| Total number of shares applied for | |
| Amount payable @ Rs. 10 per share | |
| Income-tax Permanent Account No. | |
| Specimen signatures and Seal |
Signature of Shareholder
FORM ‘B’ – FORM OF RENUNCIATION
Rights Issue of _________________ Equity Shares of Rs. _____ each to the existing shareholders whose name appeared in the Register of Members on __________________.
| The Board of Directors ……………….. Private Limited Adress: _______________ Dear Sir, | Dated: _______ |
I/We,________________________ hereby renounce my/our right to acquire the equity shares offered to the company vide Letter of offer dated ____________, in favor of __________________. Further, I have not made any application to the company for allotment of these equity shares in the name of company.
| Name | |
| Address | |
| Folio Number | |
| No. of shares held | |
| No. of shares offered | |
| No. of shares renounced | |
| Name of Renouncee | |
| Address of Renouncee | |
| Specimen signatures and Seal |
Signature of Shareholder
FORM ‘C’ – APPLICATION FORM FOR RENOUNCED SHARES
Rights Issue of _______________ Equity Shares of Rs. ____ each to the existing shareholders whose name appeared in the Register of Members on ____________.
| The Board of Directors ……………… Private Limited Address: ____________ Dear Sir, | Dated: ______ |
As per the Form of Renunciation signed by ___________________, we apply for allotment of _________equity shares as renounced in our favour by making the payment of INR___________ being the value of renounced equity shares
| Name | |
| Address | |
| Folio Number | |
| No. of shares renounced in our favour | |
| No. of shares applied based on renouncement | |
| Specimen signatures and Seal |
Signature of Shareholder
Board Resolution For Allotment of Rights Share
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CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF ______________ PRIVATE LIMITED HELD ON ________TH DAY OF __________ AT THE REGISTERED OFFICE OF THE COMPANY SITUATED ____________________
The Chairman informed the Board that `_______________/- (Rupees _____________only) has been received from M/s _______________Private Limited, towards the share application money for subscribing for Rights Equity Shares pursuant to the Letter of Offer dated _____________, 2016, along with the share application forms.
After a brief discussion, the Board passed the following resolutions for allotment of Rights Equity Shares:
“RESOLVED FURTHER THAT pursuant to the provisions of Section 62 of the Companies Act, 2013 and the relevant Rules and Regulations made there under, approval of the Board be and is hereby accorded for allotment of ________________ (_______________ only) Rights Equity Shares of `.10/- (Rupees Ten only) each at a premium of `______/- (Rupees _________ only) per share, to M/s___________Private Limited as detailed below. ”
| Name of Subscriber | No. of shares | Dist. Nos. | Nominal Value (Including Premium) | Certificate No. | Folio No | |
| From | To | |||||
“RESOLVED FURTHER THAT the Share Certificate consisting of _________ New Equity Shares be issued in favor of M/s _______________ and the share certificates be signed by _____________, Directors of the Company and be countersigned by __________ Company Secretary of the Company under the Common Seal of the Company.”
“RESOLVED FURTHER THAT _________ or __________ Directors of the Company be and is hereby severally authorized to sign and file necessary e-forms with Registrar of Companies-____________, and further authorized to do all such acts, things, deeds, matters as may be necessary and incidental thereto to give effect to the above resolutions.”
CERTIFIED TRUE COPY
M/S______________ PRIVATE LIMITED
CIN:__________________________
PLACE :______________
DATE: _____________
DIRECTOR
DIN:
