What are the procedures to right issue of shares?

Section 62 of the act deals with provisions regarding the right issue of shares by the private company.

As per section 62, a company can increase its share capital offering its shares to:-

• its existing shareholders.
• employees under employees’ stock option passing special resolution.
• any persons, if it is authorised by a special resolution.

What are the procedures to issue of right share?

The following 7 steps are the exhaustive procedures involved in right issue of shares:

Step-1: Firstly, company has to set cut off date to decide to whom shares will be offered and prepare draft offer letter.

Step-2: Hold a meeting of board of directors.

Step-3: Pass board resolution for the issue of shares and approve draft of offer letter.

Step-4: Receive application money from applicants.

Step-5: When a company receive application money, convey a second board meeting and pass a resolution to authorise allotment of shares.

Setp-6: File PAS-3 with ROC within 30 days of allotment of shares. Form PAS-3 is a return for allotment of shares.

Step-7: Issue share certificates to shareholders. A company has to issue share certificate within 60 days from the date of allotment of shares.

Additional considerations

• Company should send 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.
• Offer letter specifically contains the right of renounciation.

• Offer should open for at least 15 days and maximum of 30 days from the date of offer.  

If you have any queries, please feel free to comment.