Process for Rights Issue in a Private Limited Company in India
A Rights Issue is a way for a private limited company to raise additional capital by offering shares to its existing shareholders in proportion to their current holdings. This process is governed by the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014. Below is a step-by-step guide to conducting a Rights Issue in India.
1. Understanding the Rights Issue
A Rights Issue is an invitation to existing shareholders to purchase additional shares at a discounted price before they are offered to external investors. Unlike a preferential allotment, this method ensures that current shareholders maintain their ownership percentage if they choose to subscribe.
2. Key Provisions of the Rights Issue
- Governed by Section 62(1)(a) of the Companies Act, 2013.
- The offer must be made to existing shareholders based on their proportionate holdings.
- If shareholders do not subscribe, the Board may dispose of the shares in a manner that benefits the company.
3. Step-by-Step Process for Rights Issue
Checklist for Rights Issue in a Private Limited Company
| Step | Action Item | Details | Timeline |
|---|---|---|---|
| 1 | Board Meeting for Approval | Convene a Board Meeting, approve the Rights Issue, and pass a resolution. | 1-2 days |
| 2 | Issue of Offer Letter (Form PAS-4) | Prepare and issue an offer letter with relevant details. | Within 2-3 days of Board approval |
| 3 | Dispatch of Offer Letter | Send the offer letter to eligible shareholders through registered post, email, or hand delivery. | Immediately after issuing PAS-4 |
| 4 | Acceptance by Shareholders | Shareholders accept, renounce, or ignore the offer within the stipulated time. | Minimum 15 days, Maximum 30 days |
| 5 | Receipt of Subscription Money | Ensure receipt of application money in a designated bank account. | During the offer period |
| 6 | Allotment of Shares | Convene a second Board Meeting and pass a resolution for share allotment. | Within 60 days from receipt of money |
| 7 | Filing of Return of Allotment (Form PAS-3) | File Form PAS-3 with ROC within 30 days of allotment. | Within 30 days of allotment |
| 8 | Issuance of Share Certificates | Issue share certificates within 2 months and update records. | Within 2 months of allotment |
4. Compliance and Post-Allotment Requirements
- If the company is not classified as a small company under the Companies Act, 2013, the shares must be issued in dematerialized (demat) form in compliance with the Depositories Act, 1996 and SEBI regulations.
- Update the company’s statutory registers (Register of Members, Register of Share Transfers).
- Intimate shareholders about their updated holdings.
- Ensure compliance with any applicable tax and regulatory obligations.
- Update the company’s statutory registers (Register of Members, Register of Share Transfers).
- Intimate shareholders about their updated holdings.
- Ensure compliance with any applicable tax and regulatory obligations.
5. Conclusion
The Rights Issue process allows private limited companies to raise funds efficiently while preserving existing ownership structures. Proper documentation, timely compliance, and adherence to regulatory requirements ensure a smooth and legally sound process.
By following these steps, a private limited company can successfully execute a Rights Issue while maintaining transparency and regulatory compliance.