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    Right Issue and Private Placement

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    Mudit Singh
    The document discusses right issues and private placements of company shares. It defines a right issue as offering existing shareholders shares in proportion to their existing holdings. It then outlines the steps involved in a rights issue, including setting a cutoff date, issuing an offer letter, holding board meetings to approve the issue and allotment, and filing necessary forms with the registrar of companies. The document also defines and compares private placements and preferential allotments, detailing the relevant rules and procedures for undertaking a private placement of company shares.

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    © All Rights Reserved
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    Right Issue and Private Placement

    Uploaded by

    Mudit Singh
    516 views6 pages
    The document discusses right issues and private placements of company shares. It defines a right issue as offering existing shareholders shares in proportion to their existing holdings. It then outlines the steps involved in a rights issue, including setting a cutoff date, issuing an offer letter, holding board meetings to approve the issue and allotment, and filing necessary forms with the registrar of companies. The document also defines and compares private placements and preferential allotments, detailing the relevant rules and procedures for undertaking a private placement of company shares.

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    The document discusses right issues and private placements of company shares. It defines a right issue as offering existing shareholders shares in proportion to their existing holdings. It then outlines the steps involved in a rights issue, including setting a cutoff date, issuing an offer letter, holding board meetings to approve the issue and allotment, and filing necessary forms with the registrar of companies. The document also defines and compares private placements and preferential allotments, detailing the relevant rules and procedures for undertaking a private placement of company shares.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    516 views6 pages

    Right Issue and Private Placement

    Uploaded by

    Mudit Singh
    The document discusses right issues and private placements of company shares. It defines a right issue as offering existing shareholders shares in proportion to their existing holdings. It then outlines the steps involved in a rights issue, including setting a cutoff date, issuing an offer letter, holding board meetings to approve the issue and allotment, and filing necessary forms with the registrar of companies. The document also defines and compares private placements and preferential allotments, detailing the relevant rules and procedures for undertaking a private placement of company shares.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Right Issue

    As per Section 62(1) of the Companies act, 2013,


    Right Issue’ means offering shares to existing members in proportion to their existing share
    holding. The object is, of course, to ensure equitable distribution of Shares and the proportion
    of voting rights is not affected by issue of Fresh shares.
    IMPORTANT MATTERS RELATING TO RIGHT ISSUE OF SHARES:

    ♠ Prospectus not required in right offer even with right of renunciation:


     Section 23(2) of the Companies Act, 2013 clearly states that issue of prospectus is not
    necessary in right issue whether with or without right of renouncement.
     Department has also clarified vide letter No. 8/81/56-PR dated 04.11.157 that issue of rights
    share is a ‘domestic concern’ and hence issue or registration of prospectus is not necessary.
     Section 62(1)(a) of the Companies Act, 2013 states that company making right issue should
    send a letter of offer.
     No prospectus is required for ‘right issue’ to existing members, even if the members have
    right to renounce the right to a third person, who may or may not be a member.

    ♠ Fraction right in case of Right Issue of Shares:

     Sometimes, right issue may result in fractional right.


     The offer of further shares should be offered to holders of equity shares in proportion to the
    existing paid up capital, as nearly as circumstances admit. Thus, legally, such fractional right
    can be ignored. However, this becomes unfair, particularity to small shareholder.

    STEP PROCEDURE OF RIGHT ISSUE OF SHARES

    STEP-1
     Company will decide the cutoff date.
     Company wills Prepare Draft Offer of Letter.

    STEP-II
    Call Meeting of Board Director:
     Issue Notice of Board Meeting to all the directors of company at least 7 days before the date
    of Board Meeting.
     Attach Agenda of Board Meeting along with Notice.
     Attach Notes of Agenda along with Agenda.

    STEP-III
    Hold the Board Meeting:
     Check the quorum of Board Meeting.
     Identify the Shareholders to whom you will issue shares.
     Pass Board Resolution for approval of offer letter.
     Authorize a director of company to issue Letter of Offer.
     Letter of offer shall be dispatched through registered post or speed post or through electronic
    mode to all the existing share holders.

    STEP-IV
     Offer will be open at least after 3 days of issue of letter of offer.
     Offer will be open for minimum 15 days or maximum for 30 days.

    STEP-V
    File Form with Registrar:
     File MGT-14 with Registrar within 30 days of passing of Board Resolution.

    Attachments:
     CTC of Board Resolution for issue of letter of offer.

    STEP-VI
     Receive the Money from the Shareholders.

    STEP-VII
    Call Board Meeting after receiving of Share application money.
     Issue Notice of Board Meeting to all the directors of company at least 7 days before the date
    of Board Meeting. [Section-173(3)]
     Attach Agenda of Board Meeting along with Notice.
     Attach Notes of Agenda along with Agenda.

    STEP-VIII
    Hold the Board Meeting:
     Check the quorum of Board Meeting.
     Present List of Allottes before the Meeting.
     Pass Board Resolution for allotment of shares (within 60 days of receiving of money).

    STEP-IX
    File form with ROC:
     File PAS-3 with Registrar of Company.
    ATTACHMENTS:
     List of Allottes.
     Board Resolution for allotment of Shares.

    STEP-X
    Issue Share Certificate:
     Pass Resolution for issue of Share Certificate in Board Meeting.
     Authorize to two directors and a authorize person to sign share certificate.
     Issue Share Certificate in Form- SH-1 (As per Section-56 with in 2 (two) months from the
    date of allotment of shares

    TABLE FOR RIGHT ISSUE OF SHARES UNDER COMPANIES ACT- 2013

    S. PARTICULARS
    NO.

    1. Select the Cutoff Date – To identify Shareholders to whom offer will be given.

    2. Prepare the Draft offer letter. No prescribed Format

    3. Call Board Meeting. Section-173(3) &


    Issue notice of meeting at least 7 days notice SS-1

    4. Hold the Board Meeting

    5. Ensure about quorum of Meeting Section-174(1) SS-1

    6. Present list of Shareholders to whom offer will be given

    7. Pass the Board Resolution for issue of Letter of Offer shares. File within 30 days of passing
    e-form MGT-14 of resolution

    8. Issue letter of offer Through Registered Post,


    (offer will be open for Minimum 15 Days and Maximum 30 Days) Speed Post and Through
    Email.

    9. Once company received money from all the Allottees. Definition of deposit.
    Allot Shares within 60 days of receipt of application money.

    10. Call Board Meeting Section-173(3)

    11. Prepare List of Allottees As per Schedule- B of


    PAS-3

    12. Pass Resolution for allotment of Securities

    13. File PAS-3 with registrar. Within 30 days of


    Attachment Allotment of shares
    List of Allottes.
    Board Resolution for allotment of Shares.

    14. Issue Share Certificates. Within 2 month of allotment of shares SH-1

    Private Placement
    “Private Placement” means any offer of securities or invitation to subscribe securities
    (equity or securities that convert to equity) to a select group of persons by a company, other
    than by way of public offer, through issue of a private placement offer letter. (Section 42 of
    Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities)
    Rules 2014)

    RELEVANT RULES ISSUED UNDER COMPANIES ACT, 2013


    1) Offer letter in PAS 4 + application form serial numbered + addressed to specific person –
    to be sent in writing or electronic mode.
    2) While passing special resolution – basis or justification of pricing (including premium)
    to be made in explanatory statement.
    3) Offer per person cannot be for less than Rs. 20,000
    A person cannot apply for shares of Less than Rs 20,000 Face Value.
    4) Payment to be made from bank A/c of person subscribing.
    5) Company to keep record of such Bank A/c.
    6) To maintain complete record in PAS – 5 and PAS 4 to be filed with ROC1

    PROCEDURE FOR PRIVATE PLACEMENT

    1. Check Provision in Article regarding Private Placement

    2. Call Board Meeting:

    • To Prepare Offer Letter


    • Make Proposal for Private Placement
    • Prepare list of persons to whom option will be given
    • Call EGM

    3. Call EGM:

    • Pass SR- will be valid for 12 month

    1
    Rule 14(2) of Companies ( Prospectus and Allotment of Securities) Rules, 2014
    • If not completed PP in 12 Month pass another SR
    • Approve Draft Offer Letter by SR

    4. File MGT-14 with ROC


    Attachments: –

    • Notice of EGM
    • CTC of SR
    • Minutes

    5. Issue offer letter in PAS-4 within 30 days of record of name of persons:

    • Application form serially numbered


    • Address to the persons to whom the offer is made

    6. Prepare complete record of Private Placement in PAS-5

    7. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2

    8. Make Allotment of shares within 60 days of receipt of Money from the persons to whom
    right was given.
    9. Called BM for allotment of shares
    10. File PAS-3 with Roc within 30 days if Allotment. Attachments: – List of Allottees – BR
    for allotment of share
    11. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
    12. Issue Share Certificates.

    DIFFERENCE BETWEEN PRIVATE PLACEMENT AND PREFERENTIAL


    ALLOTMENT

    S.NO. POINT OF PRIVATE PLACEMENT PREFERENTIAL


    DIFFERENCE ALLOTMENT

    1. Governing Section Governed under the provisions Governed under the provisions
    of Section 42 of Companies of Section 62(1)(c) of Companies
    Act,2013 Act,2013

    2. Associated Rule Rule 14 of Companies( Prospectus Rule 13 of Companies (Issue of


    and Allotment of Securities ) Share Capital and Debentures)
    Rules, 2014 Rules, 2014
    3. Issue of Securities (as defined under Issue of Shares or
    Section 2(81) of Companies Act, Securitiesmeans equity shares,
    2013) which says fully or partially convertible
    “Securities means the Securities debentures or any other securities,
    defined in clause (h) of Section which would be convertible or
    2(81) of Securities Contracts exchanged into Equity Shares.
    (Regulation) Act, 1956.

    4. Offer Document Prescribed Document i.e.Private No such format is prescribed


    Placement Offer Letter (PAS 4)

    5. Limit on Number Offer or Invitation The limit as applicable on Private


    of Allottees ofSecurities shall be made to Placement shall apply as it is as per
    Maximum of 50 Persons at a time Rule 13(1) ofCompanies(
    And Prospectus and Allotment of
    200 Persons in aggregate during a Securities ) Rules, 2014
    Financial Year and this limit of
    50/200 shall exclude QIBs(
    Qualified Institutional Buyers) and
    Employees who are being offered
    securities under Employee Stock
    Option Scheme under section
    62(1)(b) of Companies Act,2013
    {Rule 14(2)}

    6. Consideration Payment through cheque, Demand Shares can be issued for Cashor for
    Draft or other bank channels a Consideration other than Cash.
    but not by Cash.

    7. Bank Account Separate Bank Account in a Nothing Specifically Required.


    Scheduled Bank is required
    to keep the application money.

    8. Valuation Report No Valuation Valuation report is required.


    Report is required.

    9. Authorization in No authorization in AOA is Authorization in AOA is required.


    Articles required

    10. Special Resolution Prior Special Resolution is Same


    Required

    11. Allotment Within 60 Days of receipt of Allotment shall be made within 12


    Application money. months of passing the Special
    Resolution.

    12. Documents PAS-4 (Private Placement Offer E Form PAS-3 will be required to
    Involved Letter) filed on MCA 21 portal as return of
    PAS-3 (E Form required to be allotment
    filed on MCA 21 portal
    PAS 5 (Record of Private
    Placement Offers to be maintained
    by the Company)

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