law unit iv--.pptx edited

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UNIT IV

ISSUE OF SHARES



SHARES

Provisions of the Companies ActRegistration & Issue of prospectus

Minimum Subscription

Application money

Money to be deposited in a scheduled bank

Opening of subscription list

Statement in lieu of prospectus to be delivered to theregistrar

Compulsory listing of all public issues

Initial offer of securities to be in the demat form in

certain cases



SHARES

Registration & Issue of prospectusWhere a public company offers shares &debentures to the public , a copy ofprospectus must be duly filed with theregistrar

Registration must be made on or before

the date of publication of the prospectusThe prospectus must be issued within 90days of its registration



SHARES

Minimum SubscriptionSec.69(1) No allotment shall be made unlessthe amount stated in the prospectus asminimum subscription has been subscribed

and the sum payable has been receivedIf the minimum subscription is not raisedwithin 120 days of the issue of the

prospectus , all the money received shall berepaid within 130 days after the issue ofthe prospectus otherwise the directors ofthe company will have to repay the amount

with interest @ 6% p.a



SHARES

Minimum SubscriptionAs per SEBI guidelines a company mustreceive a minimum of 90% subscriptionagainst the entire issue

If the company does not receive minimumsubscription within 60 days of the closure

of the issue, the company shall refund theentire amount

Any delay beyond 8 days will make thecompany liable to pay interest @ 15% p.a



SHARES

Application moneyThe amount payable on application on each shareshall not be less than 5% of the nominal amount of

the shareMoney to be deposited in a scheduled bank

All the money received on application must bedeposited in a scheduled bank till

The certificate to commence business is obtained orThe entire amount payable on application is received bythe company in respect to minimum subscription



SHARES

Opening of subscription listNo allotment can be made until the beginning of the5th day after the publication of the prospectus or

Some other time as may be prescribed in theprospectus

The company may keep the subscription list open for

any length of time



SHARES

Statement in lieu of a prospectus to bedelivered to the registrarA company with a share capital which has not issued

a prospectus, shall not allot any of its shares or

debentures unless a statement in lieu of prospectushas been filed with the Registrar at least 3 daysbefore the first allotment

This is not applicable to a private company



SHARES

Compulsory listing of all public issuesSec. 73 provides that every company intending to offershares or debentures to public by the issue of aprospectus has to make an application to one or more of

the recognised stock exchanges for permission for theshares or debentures to be dealt within the stockexchange

The prospectus must specify the name of the stockexchange

Any allotment made in pursuance of such a prospectusshall be void if any such stock exchange does not grantpermission within 10 weeks from the closing of such asubscription



GENERAL PROVISIONS

(Allotment of shares) Allotment must be in accordance with theprovisions of the Articles

Allotment must be communicatedAllotment must be made within reasonabletime

Allotment must be absolute & unconditional



ISSUE OF SHARES AT PAR

SEBI GUIDELINES for par value of shares

At any point of time the par shall be 1 or

multiples of 1

All the shares should be of the same par

value



ISSUE OF SHARES AT A DISCOUNT(SEC.79)

The issue of shares at a discount must beof a class of shares already issued

At least one year should have elapsed atthe date of issue from the date ofcommencement of business by the company

The issue is authorized by a resolution inthe GM, which must state the maximumrate of discount



ISSUE OF SHARES AT A DISCOUNT(SEC.79)

It is sanctioned by the NCLT

Shares are issued within 2 months of the

date on which the issue is sanctioned bythe NCLT or within such extended time asthe NCLT may allow

The rate of discount must not exceed10%, except with the approval of theNCLT



ISSUE OF SHARES AT A PREMIUM(SEC.78)

Issue of shares at a price higher than theface value

Total premium amount is transferred to“Securities Premium Account”




The securities premium may be utilizedfor the following purposes :

To issue fully paid bonus shares to membersTo write off preliminary expenses

To write off expenses or commissions paid or

discounts allowed on an issue of shares ordebentures

To provide for the premium payable onredemption of any redeemable preference

shares or debentures




The securities premium may be utilizedfor the following purposes :

For buy –back of own securities ( 77-A )

Even when the securities are issued at a

premium for consideration other thancash, a sum equal to the amount ofpremium must be transferred to the

securities premium account



CALLS ON SHARES

A call may be defined as a demand by thecompany, in pursuance of a resolution of

the BOD & in accordance with theregulations of the articles upon itsshareholders, to pay the whole or part of

the balance remaining unpaid on theirshares during the lifetime of thecompany.



CALLS ON SHARES

Requisites of a Valid callResolution of the BOD

The amount & time of payment

Calls on shares of the same class to be madeon a uniform basis

Bona fide & for the benefit of the company

In accordance with the provisions of thearticles of the company – (Regulations 13-18of Table A)



FORFEITURE OF SHARES

Compulsory termination of membership &taking away the shares from a member byway of penalty for non-payment of any

call, installment or premium on shares




Essentials of Valid Forfeiture:Forfeiture for non-payment of calls

Notice precedent to forfeiture

Resolution of forfeitureBona fide




Effect of Forfeiture:Defaulting shareholder ceases to be a memberof the company

He also loses the money paid by him




Reissue of Forfeited Shares:A forfeited share may be sold or otherwisedisposed of on such terms as the board thinksfit

No return of allotment is required to be filedfor the reissue of forfeited shares

The title of the purchaser of forfeitedshares will not be affected by any irregularityin proceedings with reference to theforfeiture or sale of the shares




Annulment of Forfeiture

At any time before the sale of forfeited

shares, the board may cancel the forfeitureon such terms as it thinks fit

This power cannot be exercised without theconsent of the forfeiting member



SURRENDER OF SHARES

When a shareholder abandons his sharesin favour of the company it is known assurrender of shares

Articles may provide for the acceptanceof a surrender of shares undercircumstances which would justify

forfeiture



SURRENDER OF SHARES

Director’s powers to accept surrender ofshares

A valid call & default must exist

Surrender should not be used as a device torelieve any member from his liability

Surrender of shares is ultra vires if theshares are not liable to forfeiture



SURRENDER OF SHARES

Effect

Member ceases to be the member of the companyHe remains liable as a contributory as a pastmember of the company, if the company is woundup within 12 months of his surrendering of shares

Partly paid up shares which are surrendered canbe reissued in the same manner as forfeitedshares

Where the surrender of shares is illegal, theshareholder is justified in applying to have theregister of members rectified by placing his namethereon



TRANSFER OF SHARES

Section 82 provides that the shares ofthe member in a company shall be amovable property, transferable in themanner provided by the Articles of thecompany



TRANSFER OF SHARES

PROCEDUREInstrument of transfer to be delivered to thecompany

Instrument of transfer to be in theprescribed form

Transfer by legal representative

Notice to transferee



TRANSMISSION OF SHARES

When shares pass by operation of law

from one person to another, it is known astransmission of shares

This happens when a member dies,becomes insolvent or goes insane

In all such cases the legal representativeor the Official Assignee or Receiver orAdministrator appointed by the court,

shall be entitled to the shares




Regulation 25-28 of Table AOn the death of a member, the survivor,where the member was a joint holder, shallbe the only person recognized by the company

as having any title to his interest in sharesA person becoming entitled to a share on adeath or insolvency of a member, onproduction of a satisfactory proof as to his

title, may elect eitherTo register himself as the holder of shares or

To transfer the shares as the original membercould have done




Regulation 25-28 of Table AIf a person concerned elects to become amember, he shall send a written & signednotice to the company notifying his election.

If he elects to transfer, he shall notify theelection by executing a transfer

A person becoming entitled to a share ontransmission shall have the same right as to

dividend & other advantages & privileges, asif he were the original holder except

Before registration as a member, he shall notexercise any right as member at the meeting of

the company



METHODS OF RAISING SHARECAPITAL

METHODS

IPO

PrivatePlacementof Shares

Preferential Allotment

FPO



ISSUES

PUBLICISSUE

BONUSISSUE

RIGHTISSUE

PRIVATEPLACEMENT

IPO FPO

PREFERENTIAL ALLOTMENT

QUALIFIEDINSTITUTIONAL

PLACEMENTFRESHISSUE

OFFERFOR SALE

FRESHISSUE

OFFERFOR SALE



INITIAL PUBLIC OFFERING

Refers to the selling of shares by a privatecompany to the public for the first time.

Initial Public Offering is a source of fundsraised from the primary market.

All subsequent public offerings are known as

Follow-on Public Offerings or SecondaryMarket Offerings.

http://www.appuonline.com/ipo/index.html






In the primary market, securities are offered to public for subscriptionfor the purpose of raising capital or fund. The primary market providesthe channel for sale of new securities. Primary market providesopportunity to issuers of securities; Government as well as corporate, to

raise resources to meet their requirements of investment and/ordischarge some obligation. They may issue the securities at face value,or at a discount/premium and these securities may take a variety offorms such as equity, debt etc. They may issue the securities in domesticmarket and/or international market.

Secondary market is an equity trading venue in which alreadyexisting/pre-issued securities are traded among investors. Secondarymarket could be either auction or dealer market. While stock exchange isthe part of an auction market, Over-the-Counter (OTC) is a part of thedealer market.



IPO

Initial public offer (IPO): When an unlistedcompany makes either a fresh issue of securities

or offers its existing securities for sale or both

for the first time to the public, it is called an

IPO. This paves way for listing and trading ofthe issuer’s securities in the Stock Exchanges

Further public offer (FPO) or Follow on offer:

When an already listed company makes either a

fresh issue of securities to the public or an offer

for sale to the public , it is called a FPO.



ISSUE

Rights issue (RI): When an issue of securities ismade by an issuer to its shareholders existing as

on a particular date fixed by the issuer (i.e.

record date), it is called as rights issue. The

rights are offered in a particular ratio to thenumber of securities held as on the record date.



ISSUE

Bonus issue: When an issuer makes an issueof securities to its existing shareholders as on a

record date, without any consideration from

them, it is called a bonus issue. The shares are

issued out of the Company’s free reserve orshare premium account in a particular ratio to

the number of securities held on a record date.



ISSUE

Private placement: When an issuer makes an

issue of securities to a selected group of

persons not exceeding 49, and which is neither

a rights issue nor a public issue, it is called aprivate placement. Private placement of shares

or convertible securities by listed issuer can be

of two types:

(i) Preferential allotment

(ii) Qualified Institutional Placements



ISSUE

(i) Preferential allotment: When a listed issuer

issues shares or convertible securities, to a

select group of persons in terms of provisions of

SEBI (DIP)guidelines, it is called a preferential

allotment. The issuer is required to comply with

various provisions which inter‐alia include

pricing, disclosures in the notice, lock‐

in etc, inaddition to the requirements specified in the

Companies Act.



ISSUE

(ii) Qualified institutions placement (QIP):

When a listed issuer issues equity shares or

securities convertible in to equity shares to

Qualified Institutional Buyers only in terms ofprovisions of SEBI (DIP) guidelines, it is called a

QIP.



ADVANTAGES OF PUBLIC ISSUE

Money non-refundable except in the case ofwinding up or buy back of shares

No financial burden i.e. no fixed rate of interestpayable. However, in order to service the equity,dividend may be paid.

Enhances shareholder's value if the companyperforms well

Greater Transferability

Trading & Listing of securities at stock

exchanges Better Liquidity of securities

Helps building reputation of promoters,company & its products / services, provided the

company performs well



Eligibility norms for making these issues

SEBI has laid down eligibility norms for entities accessing the primary marketthrough public issues. There is no eligibility norm for a listed companymaking a rights issue as it is an offer made to the existing shareholders whoare expected to know their company. There are no eligibility norms for alisted company making a preferential issue.However for Qualified Institutions’ placement (QIP), only those companies

whose shares are listed in NSE or BSE and those who are having aminimum public float as required in terms of the Listing agreement, areeligible.The main entry norms for companies making a public issue (IPO or FPO)are summarized as under:



Entry Norm I (EN I): The company shall meet the followingrequirements:(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.(b) Distributable profits in atleast three years

(c) Net worth of at least Rs. 1 crores in three years(d) If change in name, atleast 50% revenue for preceding 1 year shouldbe from the new activity.(e) The issue size does not exceed 5 times the pre- issue net worthTo provide sufficient flexibility and also to ensure that genuinecompanies do not suffer on account of rigidity of the parameters, SEBI

has provided two other alternative routes to company not satisfying anyof the above conditions, for accessing the primary Market, as under:



Entry Norm II (EN II):(a) Issue shall be through book building route, with at least 50% tobe mandatory allotted to the Qualified Institutional Buyers (QIBs).

(b) The minimum post-issue face value capital shall be Rs. 10 croreor there shall be a compulsory market-making for at least 2 years

OREntry Norm III (EN III):(a) The “project” is appraised and participated to the extent of 15%

by FIs/Scheduled Commercial Banks of which at least 10% comesfrom the appraiser(s).(b) The minimum post-issue face value capital shall be Rs. 10 croreor there shall be a compulsory market-making for at least 2 years.In addition to satisfying the aforesaid eligibility norms, the companyshall also satisfy the criteria of having at least 1000 prospective

allottees in its issue



Eligibility norms for making an IPO

Option AIt has Net Tangible Assets

Rs. 3

crores in each of the 3

preceding of which a

maximum of 50% can beheld as monetary assets.

If it has more than 50%

of its net tangible assets

in monetary assets, thenit must have made a firm

commitment to deploy

such monetary assets in

its business or in a

project.

Option B(if not A ) The Offer must only be

made by way of Book

Building

Further, at least 50% of

the Offering must be allotted to

Qualified Institutional

Buyers (QIBs., failing

which the full

subscription money mustbe refunded.

Or

The Project is appraised

by FIs/



Eligibility norms for making an IPO

Option A

It has a minimum net

worth Rs. 1 crore in

each of the 3

preceding full years

of 12 months each

It has a track record

of distributable profits for 3 out of

immediately

preceding 5 years.

Option B(if not A )

Scheduled Banks and atleast 10%

participation comes from

the Appraiser and a

further minimum 5% fromother FIs/ Scheduled

Banks. A further 10% must

be allotted to QIBs. If these

conditions are not met,

then the full subscriptionmoney must be refunded

and The minimum post-

issue face value of the

capital is Rs. 10 crores.



Option A

The proposed issue + all

other issues made in the

same financial year =

5times the pre-issue net

worth as per the latest

audited balance sheet of the

last financial year.

In case of a name change in

the last one year, at least

50% of the revenue of the

last one full year is from the

activity suggested by thename.

Option B(if not A )

There is a compulsory

market-making for 2years from date of listing.

The minimum buy and

sell quotes must be for

300 shares and the

differencebetween sell and buy

quotes must not exceed

10%.



Option A

The Offer can be by

way of a Book Building or by way

of a Fixed Price

Offer The minimum

number of

prospective allottees

must be 1,000.

Option B(if not A )

Further, the market

maker must keep atleast 5% of the issue

size as

inventory.

The minimum numberof prospective

allottees must be

1,000.



Applicable Laws

A company is required to comply with the following laws in connection with a public issue:-

Provisions of Companies Act, 1956 Securities Contracts (Regulations) Act, 1956

SEBI rules & regulations

Compliance of Listing Agreement with the

concerned stock exchanges after the listing ofsecurities.

RBI regulations in case of foreign/NRI equity participation.

Agencies in ol ed in a P blic



Agencies involved in a PublicIssue

Management of a Public Issue involves the participationof ……….

Managers to the Issue

Underwriters

Brokers

Registrars to the issue

Solicitors

Printers

Publicity and advertising agents

Auditors Compliance officer

Depositories

Statutory agencies (ROC,SEBI,RBI AND STOCKEXCHANGES)



Documents required

Offer document

Draft Offer document

Red Herring Prospectus

Abridged Prospectus

Letter of offer

Placement Document



Offer Document

• „Offer document‟ is a document which contains allthe relevant information about the company,promoters, projects, financial details, objects of

raising the money, terms of the issue etc and is usedfor inviting subscription to the issue being made bythe issuer.

• „Offer Document‟ is called “Prospectus” in case of apublic issue or offer for sale and “Letter of Offer” in case of a rights issue.



Draft Offer Document

Draft offer document means the offer document in draft stage. The draftoffer documents are filed with SEBI, atleast 21 days prior to the filing ofthe Offer Document with ROC. So its an offer document filed with SEBIfor specifying changes, if any, in it, before it is filed with the Registrar ofcompanies (ROCs). SEBI may specifies changes, if any, in the draft Offer

Document and the issuer or the Lead Merchant banker shall carry outsuch changes in the draft offer document before filing the OfferDocument with ROC. The Draft Offer document is available on the SEBIwebsite for public comments for a period of 21 days from the filing of theDraft Offer Document with SEBI.Draft offer document is made available in public domain including SEBI

website, for enabling public to give comments, if any, on the draft offerdocument.



Red Herring ProspectusRed herring prospectus is an offer document used in case of a book built

public issue. It contains all the relevant details except that of price or number of

shares being offered. It is filed with ROC before the issue opens .Red Herring

Prospectus is a prospectus which does not have details of eitherprice or number of shares being offered or the amount of issue.

This means that in case price is not disclosed, the number ofshares and the upper and lower price bands are disclosed. On theother hand, an issuer can state the issue size and the number ofshares are determined later. In the case of book-built issues, it isa process of price discovery and the price cannot be determined

until the bidding process is completed. Hence, such details are notshown in the Red Herring prospectus filed with ROC in terms ofthe provisions of the Companies Act. Only on completion of thebidding process, the details of the final price are included in theoffer document.



Abridged Prospectus

Abridged prospectus is an abridged version of offer

document in public issue and is issued along with the

application form of a public issue. It contains all thesalient features of a prospectus.



Placement Document

Placement document is an offer document for the

purpose of Qualified Institutional Placement and contains

all the relevant and material disclosures.



Price of an issue

SEBI does not play any role in price fixation.

There are two types of issues :

One where company and LM fix a price (called fixed price ) and

Other, where the company and LM stipulate a floor price or a price band and leave it to

market forces to determine the final price(price discovery through book building process ).



Book Building

It is a process of price discovery .

The red herring prospectus does not contain a price.

It contains either the floor price of the securitiesoffered through it or a price band along with therange within which the bids can move.

Price band -- The spread between the floor and thecap of the price band shall not be more than 20%.

In other words, it means that the cap should notbe more than 120% of the floor price.

Vetting by SEBI/Stock




Exchanges

A company cannot come out with publicissue unless draft prospectus is filed withSEBI.

A company cannot file prospectus directlywith SEBI. It has to be filed through amerchant banker.

SEBI on receiving the same, scrutinizes itand may suggest changes within 21 days ofreceipt of prospectus.




Exchanges

If the issue size is upto Rs. 20 crores then themerchant bankers are required to file

prospectus with the regional office of SEBI

If the issue size is more than Rs. 20 crores,merchant bankers are required to file

prospectus at SEBI, Mumbai office.

Prospectus is also required to be filed with theconcerned stock exchanges along with the

application for listing its securities.

Classes of Investors



Classes of Investors

According to the book building process, threeclasses of investors can bid for the shares:

Qualified Institutional Buyers: QIBs include

mutual funds and Foreign InstitutionalInvestors. At least 50% of the shares arereserved for this category.

Retail investors: Anyone who bids for shares

upto Rs 1,00,000 is a retail investor. At least35% is reserved for this category.

The balance bids are offered to high net worthindividuals and employees of the company.



Procedure for the Public Issue

Pre-Issue Obligations (i.e. before the opening of issue) Board Resolution for approving the draft

prospectus and related resolutions

Filing of form 23 with ROC for passing specialresolution for issuing shares as above.

Appointment of intermediaries and entering intoMOU with them

Due diligence by a merchant banker

Submission of all required papers/documents with

merchant bankers.




Preparation of draft prospectus in

consultation with the merchant banker and

submitting the same with SEBI along with

the fees & other requirements andsubmitting the same with stock exchanges

as per guidelines.

Receipt of queries from SEBI / stock

exchanges, if any and make changes in

prospectus, if required.

P d f h P bli I




Reply to SEBI /stock exchanges inconnection with changes in prospectus.

Obtaining in-principle approval from stockexchanges

File final prospectus with SEBI / stockexchanges / ROC

Statutory Advertisements

Submission of 1% Security Deposit with the

Regional Stock Exchange. Depositing Promoter's Contribution in the

issue in a separate bank account.





Collection of Application forms and processing thesame with the Registrar & Share Transfer Agent inconsultation with the merchant banker.

Separate account to be opened for the applicationsreceived from public

Submitting 3-day post issue monitoring report withSEBI by merchant banker.

Basis of allotment in consultation with theregional stock exchange.

Post Issue Advertisement Despatch of share certificates / refund orders





Entering into an listing agreement Obtaining permission from Stock Exchanges for listing & trading of securities

Commencement of trading of securities

78-day post issue monitoring report to besubmitted by merchant banker with SEBI.

Redressal of Investors Grievances

Application to SEBI/Stock Exchange for

refund of security deposit

Employee Stock Option




An option given to whole time directors,officers of employees of the company

To purchase the shares of the company

at a future date at a predetermined price.





Employee means:-

1. A permanent employee of the company

2. A director of the company

3. An employee of a subsidiary or a holdingcompany

Important Terms



Important Terms

Vesting : Vesting means the process by which the employee

gets the right to apply for and be issued shares of the

company under the options granted to him. Till the vesting takes place, the employee does not

have a right to apply for the shares.

Upon vesting, the employee gets an unfettered rightto apply for the issue of shares upon fulfilment of

the conditions

Important Terms



Important Terms

Act of exercise :

The act of exercise implies an application beingmade by the employee to the company to

have the options vested in him issued as sharesupon payment of the option price.

Exercise can take place as specified after

vesting.





Conditions :

The Company should constitute acompensation committee for the

administration of ESOP. A special resolution has to be passed to

get the approval of the shareholders.

There is no restriction on the no of sharesissued to a single member




Employee Stock Option Conditions :

The securities offered are subject to alock in period

A minimum period of one year should be

there between the grant of options andits vesting

There should be a maximum period ofeight years between the grant of optionsand vesting.

Employee options must be exercisedwithin a maximum period of five years

from the date of vesting





Conditions : Option granted to employee shall not be

transferable to any person

Options cannot be pledged,hypothecated or mortgaged

On the death of the employee option willvest with the legal heir.

The Directors report shall contain thedetails of options granted, optionsvested and options exercised.

BONUS SHARES



BONUS SHARES

Conditions for Issue of Bonus shares

AOA must permit such issue

Sufficient undistributed profit must be present A resolution for capitalizing the profits must

have been passed by the BOD

The resolution of the BOD must be approvedby the shareholders in the general meeting

SEBI guidelines in this regard must be

complied with

BONUS SHARES



BONUS SHARES


No company shall, pending conversion ofFCDs/PCDs, issue any bonus shares, unlesssimilar benefit is extended to the holders ofsuch FCDs/PCDs through reservation ofshares in proportion to such convertible part

of FCDs/PCDs.

BONUS SHARES



BONUS SHARES


The company must file with the Registrar

a return stating the number and nominal amountof bonus shares issued together with

the names, addresses & occupations of the allottees &

a copy of the resolution authorizing the issue ofsuch shares

This must be done within 30 days of the

allotment of such shares

BONUS SHARES



BONUS SHARES

SEBI guidelines

The bonus issue is made out of the freereserves built out of the genuine profits orshares premium a/c

The declaration of bonus issue , in lieu ofdividend, is not made

The bonus issue is not made unless the partlypaid shares, if any existing, are made fullypaid up

BONUS SHARES



BONUS SHARES

SEBI guidelines The company -----

Has not defaulted in payment of interest or

principal in respect of fixed deposits & interest onexisting debentures or principal on redemptionthereof &

Has not defaulted in respect of the payment of

statutory dues like---provident fund etc.

BONUS SHARES



BONUS SHARES

SEBI guidelines

A company announces its bonus shares afterthe approval of BOD must implement theproposal within 6 months from the date of

approval & shall not have the option ofchanging the decision

There should be the provision in AOA of the

company for capitalisation of reserves & ,ifnot, the company shall pass a resolution ingeneral meeting making provision in AOA

BONUS SHARES



BONUS SHARES

SEBI guidelines

Consequent to the issue of bonus shares, if thesubscribed & paid up capital exceed the authorisedshare capital, a resolution shall be passed by the

company at its general body meeting for increasingthe authorised capital

A company while issuing bonus shares, forward toSEBI a certificate duly signed by the issuer company

& duly countersigned by its statutory auditor by aCS in practise to the effect that conditions for theissue of bonus shares have been duly complied with

RIGHT ISSUE



RIGHT ISSUE

Existing shareholders have the privilege to buy aspecified number of new shares from the firm at a

specified price within a specified time.

A rights issue is offered to all existingshareholders individually and may be rejected,

accepted in full or accepted in part.

Rights are often transferable, allowing the holderto sell them in the open market.

RIGHT ISSUE



RIGHT ISSUE

(Notice) The company must give notice to each of the

equity shareholders, giving him the option to take

the shares against payment of the specified money

The notice must mention the number of shares the

shareholder has the option to take

Minimum of 14 days notice must be given forexercise of his option

RIGHT ISSUE



RIGHT ISSUE

(Notice) Unless the Article provides otherwise, the notice

must also state that the shareholder shall have the

right to renounce the offer in whole or in part, infavour of some other person

If the shareholder does not inform the company of

his decision within a stipulated time, he shall bedeemed to have declined the offer

RIGHT ISSUE



RIGHT ISSUE

(Notice) However, where some shareholders of a company

were not given notice to apply for allotment of

additional shares, subsequent allotment of sharesto other shareholders at a meeting would be

invalid

RIGHT ISSUE



(SEBI Guidelines)

Applicability

Listed companies

Where offer exceeds 50 lacs

Withdrawal of a rights issue after announcement

Such company shall not be permitted to get any of its

securities listed for a minimum period of 12 months

Underwriting

Appointment of Registrar

Appointment of Merchant Banker

RIGHT ISSUE



RIGHT ISSUE(SEBI Guidelines)

Partly paid up shares to be made fully paid

Disclosure in letter of offer

Agreement with depository

Filing of letter of offer with Regional Stock

exchange

Closure of rights issue

Open for 30 days but not more than 60 days

RIGHT ISSUE



RIGHT ISSUE(SEBI Guidelines)

Minimum subscription

90 % minimum subscription

If not received then entire amount collected should berefunded within 42 days from the date of closure of the

issue

In case of delay in refund by more than 8 days, interest

has to be paid @ 15% p.a

No reservations in right issue

Promoter’s contribution and lock in period

RIGHT ISSUE



(SEBI Guidelines)

Rights of FCDs & PCDs holders

Restriction on further capital issue

Oversubscription not to be retained Issue to be made fully paid up within 12 months

Utilisation of funds in case of rights issue

Compliance report 3 day post issue monitoring report

50th day post issue monitoring report

RIGHT ISSUE



(SEBI Guidelines)

Additional facility for applying

Advertisement must be published at least 7 days before

the date of opening of the issue. It must contain the

following details :

Centers where the shareholders may obtain duplicate

copy of application forms in case they do not receive

the original app form Shareholders may make application to subscribe to the

rights on plain paper (if above condition is not

satisfied)

RIGHT ISSUE



(SEBI Guidelines)

Additional facility for applying

The advertisement must also contain a format to enable

the shareholders to make the application on a plain

paper like name , address, ratio of right issue, issue price, number of shares held etc.

The applications can be directly send through

registered post along with the application money

Shareholders making the application otherwise than on

a standard form shall not be entitled to renounce their

rights and shall not utilise the standard form for any

purpose even if it is received subsequently

RIGHT ISSUE



(Exceptions)

In the following circumstances the company need

not give the right issue to the existing

shareholders:

In case of the allotment of shares within 2 years of theformation of a company or within 1 year after the first

allotment , whichever event occurs earlier

Where a special resolution is passed in the generalmeeting providing that the shares need not be offered

to the existing shareholders

Contd….



Where no such special resolution is passed but the

votes cast in favour of the proposal contained in

the resolution moved in the GM exceed the votes,

if any, cast against the proposal & the CentralGovt. is satisfied, on an application made by the

BOD in this behalf, that the proposal is most

beneficial for the company

Contd….



A private company need not offer its further issue

first to existing shareholders

In case of issue of shares against conversion of

loans or debentures

Sec 81 does not come into play where the

company proposes to make allotment of shares to

its creditors