A rights issue is an offer of new shares to existing shareholders in proportion to their existing holding. Section 62(1)(a) governs the rights issue, and the procedure is built around a board resolution, a letter of offer and a defined offer window.
The Offer Window
The letter of offer must be dispatched to all existing shareholders at least three days before the opening of the issue. The offer must remain open for a minimum of 7 days and a maximum of 30 days. The 7-day minimum is a reduction from the earlier 15-day requirement, and the reduction has shortened the overall rights-issue timeline to approximately 23 working days from board approval in the current practice.
The Board and Shareholder Approvals
The rights issue is approved by the board, which determines the price, the ratio and the record date. The board resolution is followed by the letter of offer. Where the articles or the Act require, the shareholders’ approval is obtained, and MGT-14 is filed. The rights issue does not require a special resolution unless the articles or a specific provision requires it.
The Renunciation and Additional Shares
A shareholder can renounce the rights entitlement in favour of another person, subject to the articles and the terms of the offer. A shareholder can also apply for additional shares beyond the entitlement, and the board allocates the unsubscribed portion in the manner prescribed. The letter of offer should set out the renunciation and additional-share terms.
The Filing and Allotment
The allotment is made after the offer window closes, and the return of allotment is filed in PAS-3 within 30 days. The rights issue is not a private placement and is not governed by Section 42; the two routes are distinct, and the company should not mix the Section 42 offer-letter and valuation requirements into a rights issue.
Call to Action: We advise companies on rights-issue structuring, offer timelines and allotment filings. For a rights-issue review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.