COMPANIES ACT- 2013
PROCEDURE FOR ALLOTMENT OF RIGHT ISSUE OF SHARES:
a. Call a Board meeting by issue notice of meeting.
b. Approve right issue including “letter of offer”, which shall include right of renunciation also.(At Board Meeting).
c. Send offer letter to all existing members as on the date of offer.(Through
registered post or speed post or through electronic mode to all the
existing share -holders at least three days before the opening of the
issue.)
d. Receive acceptance/
renunciations/rejection of rights from members to whom offer has been
sent & also from persons in whose favour right renounced.
e. Call a Board meeting by issue of notice.
f. Approve allotment by passing of Board Resolution.
g. Issue of share certificates.
h. Authorize two directors and one more person for signature on Share Certificates.
i. Attach list of allottees in form PAS-3 mentioning Name, Address, occupation if any and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the form pas-3.
j. Authorize a director to file E-form PAS 3(Return of Allotment) to ROC within 30 days of passing of Resolution.
k. Authorize a director to file E-form MGT 14 for issue of share certificate within 30 days of passing of Resolution.
l. File E-form MGT 14 for issue of share & PAS 3 to ROC for allotment.
m. Issue share certificate.
n. Make Allotment within 60 days of receiving of Application Money; otherwise it will treat as deposits as per deposits rules.
From: commerceduniya.com
13 comments:
Rights issue is directly offered to all existing shareholders of the Company in proportion to their current holding. The company also set a time limit for the shareholder to buy the shares. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts.
Section 62 of Companies Act, 2013 contains provisions on “further issue of capital”, and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company.Provisions of Section 62 of Companies Act, 2013 are mandatory for all Private companies, public companies, listed as well as unlisted companies.
Some relevant point of the same related to rights issue are as follows:
Sec 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered :
(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—
(i)The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;
(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be 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; and the notice referred to in clause (i) shall contain a statement of this right;
(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;
It also talks about procedural aspect which is already stated in the blog.
It also gives other Important informations like:
There is no prescribed format for “Letter of offer” to be issued, in case of right issue of securities. Format of “Letter of offer” prescribed in Companies Act, 2013 is Pursuant to section 42 and rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 and not for Section 62.
Letter of offer shall specify the number of shares offered and other information and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
Attach with E-Form PAS-3 (i) Board Resolution for allotment and issue of share. (ii) Letter of offer (iii) List of Allottees
List of Allottees attached with E-Form PAS-3 shall state the names, address, occupation, if any, of the shareholder and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.
16BAL090 -PALAK DHEER
Right issue is dividend of subscription rights for buying additional securities in a company made to the company's existing security holders. It can be bought from issuer at specific price. within subscription period. It is tax free to shareholders on ratio basis. It is also a source of capital as company gets shareholders money in exchange of shares.
Section 62 of company's act 2013 contains provisions on issue of capital and it is mandatory for all private companies , public companies, listed as well as unlisted companies.
procedure:-
*Issue notice in writing at least 7 days before to every director.
*Convey a board meeting and pass board resolution approving letter of offer.
*Dispatch it to all shareholders 3 days before opening of issue. If in private company the 90% members give their consent then this time limit do not applies.
*After receiving their rejections and acceptance convene board meeting and pass board resolution for approving allotment and issuing shares.
*File with registrar a return of allotment in electronic form PAS-3 within 30 days and file electronic form MGT within 30 days of issue of security.
(There is no prescribed format for letter of offer to be issued.)
Rights Issue of Shares
A rights issue is one of the ways by which a company can raise equity share capital among the various types of equity share capital sources available. These are slightly different from the standard issue of shares. Right shares mean the shares where the existing shareholders have the first right to subscribe the shares.
In layman terms, rights issue gives a right to the existing shareholders to purchase additional new shares in the company. Rights shares are usually issued at a discount as compared to the prevailing traded price in the market. The existing shareholders are allowed a prescribed time limit/date within which need to exercise the right or the right will thereafter be forgone.
Features of Rights Issue of Shares
The rights shares allow preferential treatment to existing shareholders, where existing shareholders have the right to purchase shares at a lower price on or before a specified date. The shares are issued at a discount as a compensation for the stake dilution that will take place post issue of additional shares.
The existing shareholders can trade the rights to other interested market participants until the date at which the new shares can be purchased. The rights are traded in a similar way as the normal equity shares.
The amount of rights issue to the shareholders is usually at a proportion of existing holding.
The existing shareholders can also choose to ignore the rights; however, one may not do so as existing shareholding will be diluted post issue of additional shares and will result in a loss (in valuation) for existing shareholder.
Why Does a Company Issue Rights Shares?
A company may look to raise a large amount of capital for expansion projects which may have a longer gestation period.
A project where debt/loan funding may not be available/suitable or expensive usually makes company to raise capital via this route.
Companies looking to improve debt to equity ratio or looking to buy a new company may opt for funding via rights issue route.
Sometimes troubled companies may issue rights shares to pay off debt to ease the financial strain.
PROCESS OF RENUNCIATION OF RIGHT OF SHARES
A. PROCESS OF RENUNCIATION OF SHARES BY THE SHAREHOLDER:
We can call this process as “Issue of share to outsiders under Right issue of Shares”.
PROCESS ON PART OF SHAREHOLDER:
1. Company will give offer to existing shareholders under Right Issue of Shares.
2. If a shareholder is not interested in accepting the offer of additional shares, he can renounce the same in favour of any other person, who may not be member of the Company. {This is the way by which Company can issue shares to outsiders under Right issue of shares}.
3. Giving of such right of renunciation is mandatory: unless the Article of the company provide otherwise. The right must be specified in Letter of offer given to the Shareholder.
4. Renounce by Shareholder: Normally ‘Right Issue’ is at a price lower than the prevalent market price A shareholder who may be short of funds can renounce his right to specified number of shares, by ‘Selling’ his right to subscriber.
5. Exercise Both Rights: He can subscribe to part of his rights and renounce the balance. This is permissible.
PROCESS ON PART OF COMPANY:
1.Company will give offer of “Renunciation” to existing shareholders in the Letter of Offer.
2.If Shareholder wants to renunciation of Shares then shareholder will give a letter of renunciation in favour of renounce to Company.
3.Company will receive an acceptance letter and share application money from the renounce.
4.After closing of offer period company will hold a Board Meeting and allot shares to renounce.
B.PROCESS OF RENUNCIATION OF RIGHT OF SHARES BY THE BOARD:
PROCESS ON PART OF COMPANY:
1.Company will give offer of “Renunciation” to existing shareholders in the Letter of Offer.
2.If Shareholder don’t subscribe to the ‘right issue’. They may not even renounce their right to a third person.
3.In such cases, the Board of Directors can dispose of the un-subscribed shares in a manner which they think is most beneficial to the company.
4.Board of Directors can allot the UN-subscribe portion of shares to any other person.
5.Normally practice followed by good companies is to ask the Shareholders to apply for additional shares, over and above the shares allocable to them as a matter of right.
6.The un-subscribed portion is allotted to the members who have applied for additional shares on an equitable basis and balance amount is refunded
IMPORTANT MATTERS RELATING TO RIGHT ISSUE OF SHARES:
♠ Prospectus not required in right offer even with right of renunciation:
•Section 23(2) of the Companies Act, 2013 clearly states that issue of prospectus is not necessary in right issue whether with or without right of renouncement.
•Section 62(1)(a) of the Companies Act, 2013 states that company making right issue should send a letter of offer.
•No prospectus is required for ‘right issue’ to existing members, even if the members have right to renounce the right to a third person, who may or may not be a member.
♠ Fraction right in case of Right Issue of Shares:
•Sometimes, right issue may result in fractional right.
•The offer of further shares should be offered to holders of equity shares in proportion to the existing paid up capital, as nearly as circumstances admit. Thus, legally, such fractional right can be ignored. However, this becomes unfair, particularity to small shareholder.
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called "rights", which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.
PAS – 3 Form
Return of Allotment
eForm PAS-3 is required to be filed pursuant to Section 39(4) and 42(9) of the Companies Act, 2013 and rule 12 and 14 Companies (Prospectus and Allotment of Securities) Rules, 2014.
Whenever a company makes any allotment of shares or securities, it is required to file a return of allotment in eForm PAS-3 to Registrar within thirty days of such allotment including the complete list of allotees to whom the securities have been issued.
You can file this form with different event dates (date of allotment) if these dates are within 30 days of the filing date. If any of the date(s) are beyond 30 days, then separate form is to be filed for every such event date.
If it is required to file eForm MGT-14 in relation to the resolution passed for issue of shares; ensure that filing of eForm MGT-14 precedes filing of this eForm.
Securities allotted payable in cash
Enter the details of securities allotted in cash.
Enter the total number of allotments for which this eForm needs to be filed. Based on the number entered here, number of blocks shall be displayed for entering the details. Details of maximum five such allotments can be filed through this eForm. If the total number of allotments is more than five, then file another eForm PAS-3 for remaining such allotments.
More than one option can be selected from equity with differential rights, equity without differential rights, debentures or preference shares in case more than one kind of security is allotted, otherwise select whichever is applicable.
Securities allotted for consideration otherwise than in cash
Enter the details of securities allotted for consideration otherwise than in cash.
Enter the total number of allotments for which this eForm needs to be filed. Based on the number entered here, number of blocks shall be displayed for entering the details. Details of maximum three such allotments can be filed through this eForm. If the total number of allotments is more than three, then file another eForm PAS-3 for remaining such allotments.
More than one option can be selected from equity with differential rights, equity without differential rights, debentures or preference shares in case more than one kind of security is allotted, otherwise select whichever is applicable.
Select whether an agreement or contract is executed in writing for allotting shares for consideration otherwise than in cash. In case any agreement or contract is not executed, then it is mandatory to attach stamped particulars of contract about the shares issued for consideration other than cash if such contract is not reduced to writing.
Rights issue (RI): When an issue of securities is made by an issuer to its shareholders
existing as on a particular date fixed by the issuer (i.e. record date), it is called an rights
issue. The rights are offered in a particular ratio to the number of securities held as on the
record date
The Offer shall remain offer at least 3 days of issue of letter of offer
Minimum days: offer will be open for minimum 15 days
Maximum days: offer will remain offer for maximum 30 days
Rejection of offer of Right issue and issue shares to outsiders First of all Company gives the offer to existing shareholder under Right issue of shares If shareholder is not interested in accepting the offer of additional shares , he can renounce the same in favor of any other person who may not be the member of Company Right to issue the shares to outsider must be mentioned in Letter of offer given to Shareholders
According to section 23(2) of Companies Act 2013, issue of Prospectus is not necessary in Right issue whether with our without right of renouncement .
Issue & redemption of Preference Shares under the provisions of Companies Act, 2013 is governed by Section 55 to the Act and rule 9 & 10 of Companies (Share Capital and Debenture) Rules, 2014.
Issue of the preference shares are restricted to certain extant. Issue of preference shares may be made either through Rights Issue, ESOP or Preferential Allotment under Section 62 of the Companies Act, 2013
Issue of Preference shares through Rights Issue under Section 62(1)(a) only to the existing Equity Share holders. The objectives of the issue;
The manner of the issue of shares;
The price at which such shares are proposed to be issued;
The basis on which such price has been arrived at;
The terms of the issue, including terms and rates of dividend on each shares, etc.;
The terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion;
The manner and modes of redemption;
The current shareholding pattern of the company;
The expected dilution in equity share capital upon conversion of preference shares.
Hold the general meeting and pass the special resolution for issue of Preference Shares.
The resolution passed for the issue shall as per rule 9(2) of Companies (Share Capital and Debentures) Rules, 2014 shall set out the following particulars in respect of the following matters relating to such shares, namely –
The priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares;
The participation in surplus funds;
The participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid;
The payment of dividend on cumulative or non-cumulative basis;
The conversion of preference shares into equity shares;
The voting rights;
The redemption of preference shares.
After passing the resolution file the resolution along with the explanatory statement issued along with the resolution in Form MGT-14 within 30 days of passing the resolution with the filing fee as provided in the Act and rules made there under, for registration of the same.
Convene a Board Meeting to issue Letter of Offer for the rights issue to the existing Equity share holders which shall also include the rights of renunciation.
The offer should be open for not less than 15 days and not more than 30 days.
As the acceptance or renunciation letter is received from the offerees and the funds are received from the shareholders who has accepted the offer, within 60 days of the receipt of the funds allotment of preference shares is to be made in a duly convened board meeting.
Once the form with special resolution is approved make arrangements for calling of the board meeting with 7 days notice for allotting the preference shares under Section 62(1)(a).
Hold the board meeting and pass the resolution for allotment of shares to the existing equity shareholders on the proportion of their equity holding.
File Form PAS-3 with ROC with the resolution and the list of allottees in Table A & B within 30 days of passing the resolution in the board meeting with prescribed filing fee. (it is good compliance if as an attachment to the form, Letter of offer, acceptance & renunciation letter is attached along with.)
Ayushi Mukherjee
16bal071
Electronic Rights Issue Process
a. The issuer fixes a Record date to identify eligible shareholders. These
shareholders would be entitled to subscribe to the proposed Rights Issue.
b. The issuer dispatches a letter to each shareholder informing that the rights
entitlements have been credited into their respective demat accounts and
duration of trading in RE and attaching the Letter of Offer and a Blank
Application Form (unlike the present form which has shareholders’ name
and entitlement printed on it) to all the shareholders on the record date.
c. The blank application forms shall also be available with the stock
exchanges, merchant bankers and brokers. Further, soft copy of the same
shall be available on the websites of the aforesaid intermediaries.
d. The registrar, on the instruction of the issuer, shall through credit corporate
action, credit the RE in the given ratio into the demat accounts of the
eligible shareholders (as on record date).
e. The Rights issue shall thereafter open for (a) subscription and (b)
renunciation/trading of RE electronically through the stock exchange
platform.
f. Trading will happen in REs on the secondary market platform of the stock
exchanges as it happens in case of ordinary shares. To separate the
trading of REs from the trading of ordinary shares, a separate ISIN shall
be given for the REs.
g. Shareholders, who do not want to exercise their RE, can renounce their
RE by selling their REs on the electronic trading platform of stock
exchanges.
h. The shareholders who have not renounced their RE and the renouncees
who don’t want to renounce their RE further shall apply for shares against
their RE during the issue period (which includes the trading period of RE)
by submitting the application form received with the Letter of
Offer/downloaded blank application form or by submitting the required
information on a blank paper and submit the requisite payment instrument
to Bankers to the issue (i.e as per the current practice )
i. Trading of RE may close at least 3 working days before closure of the
rights issue so as to avoid last minute rush in submitting applications and
to ensure that beneficial owner of REs have sufficient time to submit an
application form. Once trading of REs closes, ISIN assigned to REs shall
be suspended.
j. After the closure of trading and settlement of the trades done, the
depositories shall make available the list of RE holders on the date the ISIN was suspended and the list of shareholders on the record date to the
registrar with their respective number of REs.
k. Thereafter, the registrar shall reconcile the application by matching the
number of shares applied for with number of RE available in the respective
demat accounts based on the aforesaid list.
l. The registrar shall finalise the allotment and thereafter on the instruction of
the issuer, credit the rights shares through a credit corporate action, to the
respective demat accounts.
m. Thereafter, the registrar shall through a corporate action, debit the REs
from the respective demat accounts for (a) shares allotted and (b) lapsed
REs.
roll no.- 16BAL117
Steps:
BOD will pass a resolution letter of rights issue as per SEBI guidelines.
ONce it reaches the shareholder's house they have the choice of accepting , renouncing or cancelling the offer.
If accepted the, new securities are printed.
A copy of subscription is sent to ROC.
Company have to send share certificate within 1 week.
If the process goes for more than 30 days than SEBI intervenes and additional charge of 6% is levied from 31st day.
IMPORTANT MATTERS RELATING TO RIGHT ISSUE OF SHARES:
* Prospectus not required in right offer even with right of renunciation:
*Section 23(2) of the Companies Act, 2013 clearly states that issue of prospectus is not necessary in right issue whether with or without right of renouncement.
*Section 62(1)(a) of the Companies Act, 2013 states that company making right issue should send a letter of offer.
*No prospectus is required for ‘right issue’ to existing members, even if the members have right to renounce the right to a third person, who may or may not be a member.
Steps fot RIGHT ISSUE OF SHARES:
1.Board Of Directors will pass a resolution letter of rights issue.
2.After it reaches the shareholders they have the choice of accepting , renouncing or cancelling the offer.
3.In case it is accepted the, new securities are printed.
4.A copy of subscription is sent to Registerar Of Company.
5.Company have to send share certificate within 1 week.
6.If the process goes for more than 30 days than S.E.B.I intervenes and additional charge of 6% is levied thereafter.
PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT BASIS FOR PRIVATE LIMITED COMPANIES:
1. Issue notice in writing to every Director at least seven days’ before convening the Board meeting.
2. Convene a Board Meeting.
3. Pass a Board resolution for approving “Letter of Offer”. The offer letter shall include right of renunciation also.
4. Dispatch Letter of offer to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue. In case of Private companies if ninety percent of the members of company give their consent in writing or in electronic mode, the time limit of three days before the opening of the issue shall not apply.
5. Receive acceptance, renunciations, rejection of rights from shareholders.
6. Issue notice in writing to every Director at least 7 days’ before convening Board meeting.
7. Convene a Board Meeting
8. Pass Board resolution for approving allotment and issue of shares.
9. File with Registrar a return of allotment in E-Form PAS-3 within 30 days of allotment of shares.
1. File E-for MGT 14 within 30 days of Issue of securities. (Not applicable in case of private companies)
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