FURTHER ISSUE OF SHARES

Issue of Shares on Rights Issue basis

Issue of shares on Rights Issue basis is one of the ways of increasing the Paid up Share Capital of the Company.

In case of Rights Issue of shares, the Company issues additional shares to the existing shareholders in the proportion to their current shareholding.

Rights issue ensures equitable distribution of shares among the existing shareholders of the Company in the proportion of their voting rights.

Rights issue process can be availed by Private Limited Company, Public Limited Company, Listed Company or Unlisted Company. In order to retain the ownership, Private limited Company resorts to raising of capital from their existing Shareholders of the Company through rights issue process.

While making an offer under the Rights Issue, the shares are offered to all the existing shareholders of the Company. The shareholders get the right of Renunciation, in case they do not intend to accept the rights issue offer or do not intend to invest further capital in the Company.

Firstly, the Company needs to check its Authorised Share Capital of the Company in order to accommodate the new issuance of shares on Rights Issue basis. Also, the Board of Directors of the Company must be authorised by the Articles of Association to issue shares on Rights Issue basis.Rights Issue is governed by section 62 of the Companies Act 2013. Synopsis of the procedure followed for issue of shares on Rights Issue basis is as follows:

Notice of board meeting is issued to all the directors of the Company at least seven days before the date of the board meeting along with a detailed agenda of the Board Meeting.
The board meeting is held. The resolution for issuing Rights Shares is passed.
Letter of offer is issued to all the shareholders And the same is sent through registered post or speed post. The shareholders are required to accept the offer within the stipulated time given under the offer letter. The offer is considered declined, if it is not accepted before the expiry period.
Prescribed form is required to be filed after passing of a board resolution.
The shareholder is required to confirm the acceptance of the Offer Letter and is required to transfer the application money in the Company’s bank account.
After the closure of the offer, the list of shareholders who have accepted the offer and list of shareholder who have renounced their shares needs to be prepared.
Another board meeting shall be conducted in order to allot the shares in the proportion in which the shares are accepted, renounced or denied.
Allotment of shares needs to be filed with the ROC in the prescribed form along with the Certified Copy of Board Resolution and list of allottees.
If the shares are held by the Company in physical form, then the Share Certificate needs to be issued within 2 (Two) months from the date of allotment of shares.
In case the shares are in Demat form, then the Company must inform the depository immediately on allotment of shares. After dematerialisation of shares, a prescribed form is required to be filed with the Ministry of Corporate Affairs.

When a Company demands Capital infusion, Rights Issue Process is the most convenient form of fundraising resorted by the existing shareholders of the Company.

Issue of Shares on Preferential Issue basis

A Preferential Issue is an issuance of shares or securities by Private Limited Company, Public Limited Company, Listed or Unlisted Companies to a selected group of Shareholders who are not the existing Shareholders of the Company. Preferential issue and allotment process is followed when the Company intends to issue shares:

It is another fastest way to infuse Capital in the Company. It is one of the mediums used by the investors to infuse Capital in the Start-up Companies. Investors are generally issued and allotted either Equity or Convertible Preference Shares, Convertible Debentures on preferential basis.

Preference issuance and allotment is governed by section 62 and section 42 of the Companies Act 2013 along with the rules as prescribed there under. Synopsis of the procedure followed for issue and allotment of shares on preferential basis is as follows:

Notice of Board Meeting is issued to all the Directors of the company at least seven days before the Board Meeting along with the detailed agenda of the Board Meeting.
The Board Meeting is held to issue shares or securities on a preferential basis subject to approval of the shareholders in an Extra-ordinary General Meeting. Draft valuation report obtained from the registered valuer is also required to be placed before the Board of Directors of the Company.
Draft notice of EGM along with the explanatory statement needs to be approved at a Board Meeting.
Conduct EGM to pass Special Resolution in regard to the issue of shares or securities on preferential basis.
Prepare a Private Placement Offer cum Application Letter and circulate it to Shareholders within the stipulated time.
Open a separate Bank Account in order to receive the Subscription Money.
Conduct another Board Meeting to approve issuance and allotment of the Shares / Securities.
Allotment of shares needs to be filed with the ROC in the prescribed form along with the Certified Copy of Board Resolution and list of allottees.
If the shares are held by the Company in physical form, then the Share Certificate needs to be issued within 2 (Two) months from the date of allotment of shares.
In case the shares are in Demat form, then the Company must inform the depository immediately on allotment of shares. After dematerialisation of shares, a prescribed form is required to be filed with the Ministry of Corporate Affairs.

Please note the procedure described above is a brief synopsis of the steps followed at the time of issuance and allotment of Shares / Securities on Rights Issue Basis / Preferential Issue Basis.

Much more detailed process is followed while execution of the transaction.

These details are jotted down strictly for giving a brief information about the process followed.