Who is offered shares in a rights issue?
A rights issue offers the new shares to the people who already hold equity shares of the company, in proportion to their holding on the date of the offer. It is not an offer to the public, and it is not a private placement. The section is 62(1)(a) of the Companies Act, 2013.
Who receives the offer?
The letter of offer states how many shares each equity shareholder may take. Unless the articles say otherwise, that shareholder may renounce the offer in favour of someone else. The board does not skip the members and offer the shares to outsiders first. A private placement, which is a selected group under section 42, is a different offer and is explained on the private-placement page.
The company can make the offer only within its authorised capital. If the capital is short, it is increased first. That increase is on the authorised-capital page.
How long does the offer stay open?
The notice gives at least 15 days and not more than 30 days. If the shareholder does not accept in that time, the offer is treated as declined. A private company may use a shorter period when ninety percent of its members have agreed to that shorter period in writing or by electronic means.
After the time ends, or after an earlier refusal, the board may dispose of the shares that were not taken. The disposal must not be disadvantageous to the shareholders and the company. A listed company also follows the securities regulator’s rules for a rights issue, including an offer in dematerialised form. This page does not restate a stock-exchange deposit or a minute-count from an old listing agreement.
What is filed after allotment?
The board allots the shares that were accepted. The company files the return of allotment with the Registrar within 30 days of allotment. Share certificates, where the shares are not held in dematerialised form, are delivered within two months of allotment. The names go into the register of members. A listed company applies to the stock exchange for listing of the new shares. That application is not a step for an unlisted company.
Frequently asked questions
Four questions cover a listed company, renunciation, outsiders, and a private placement.
Is a rights issue only for a listed company?
No. Section 62 applies to every company with a share capital. A listed company has extra steps under the securities rules. Those steps are not what makes the offer a rights issue.
Can a shareholder pass the offer to someone else?
Yes, unless the articles say otherwise. The offer includes a right to renounce the shares in favour of another person.
Can the board offer the shares to outsiders first?
No. The first offer is to the existing equity shareholders. Shares that are declined, or that are not taken in time, may then be disposed of in a way that is not disadvantageous to the shareholders and the company.
Is a rights issue a private placement?
No. A private placement is an offer to a selected group under section 42. A rights issue is an offer to the existing equity shareholders under section 62.
Sources
A rights issue is section 62(1)(a) of the Companies Act, 2013. The return of allotment is section 39. Share certificates are section 56.