Right Issue - Section 62 of Companies Act, 2013.

Right Issue - Section 62 of Companies Act, 2013.

Companies need capital to grow and it is not easy to raise necessary capital. They can raise capital either by way of issue of shares or debt securities. Tjhe issue can be to new investors or to existing security holders. If the securities are being issued to existing investors and if the company is dong well in their business, they will invest as much they can.

Section 62 explain the provisions how a company can raise their share capital by offering to existing shareholders.

If you are offering shares to existing holders, section 62 says that it has to be offered in proportion of their exisitng holding.

Procedural aspects:

1. Offer letter need to be issued to each existing shareholders.

2. The notice can be despatched through registered post or speed post or through electronic mode or courier or any other mode having proof delivery to all the existing shareholders at least threee days before the opening of the issue.

3. Number of shares offered and the time within which offer should be accepted.

4. With 90% of the member’s consent, the time limit of the offer is less than 15 days, for private company.

5. If the holders are not able to accept the offer within the limit, the offer shall be deemed to have been declined and the Board of directors can dispose those shares as beneficial to the company and not disadvantageous to the company.

6. Right of renunciation is inherent right, if not otherwise mentioned in Articles of Association.

Brief procedures for right issue:

1. Provision in the Articles need to be checked and if there is no provision the article need to be amended.

2. Board meeting need to be called on proper notice, get approval of the directors for right issue.

3. Send the offer to existing shareholders,within the time frame, right of renunciation is inherent unless mentioned otherwise in Articles of association of the company.

4. the Members should send their acceptance within the specified time. If the holders fails to accept the offer or they fails to renounce, then the company can dispose the shares, which is beneficial to the compnay and beneficial to shareholders.

5. The money will be received from the holders, and board meeting will be called for allotment of the share.

6. Company shall file PAS 3 within 30 days of the board meeting and issue share certificate to the share holders within 60 days of allotment.

7. It is to be noted that there is not need to open separate bank account.

8. There is no need to have valuation report.

9. When we look on to the section 62 , the term is shares or other securities, means it will include, equity shares, convertible securities and other securities.