Rights issue defined as offering shares to existing shareholders proportionally

Ensures equitable distribution and maintains voting rights proportion

Objective is to raise capital while protecting shareholders' interests

Section 621 mandates rights issue to existing equity shareholders

Ensures compliance with legal requirements for share issuance

Employees Stock Option Scheme Shares can be issued to employees under prescribed conditions section 621b

Conversion of Debentures/Loans If debentures or loans have an option to convert into shares, rights issue is not needed section 623

Special Resolution by Shareholders Shareholders can pass a resolution to offer shares to select individuals section 621c

Government Directive Government loans or debentures can be converted into shares without rights issue section 624

Nidhi Companies Exempt from rights issue provisions MCA Notification dated 562015

Illegal and void issuance to outsiders without special resolution Westfort HiTech Hospitals v V S Krishnan

Required to be sent to existing shareholders

Informs shareholders of their right to subscribe to shares

Specifies terms, conditions, right of renunciation, and acceptance period

Must be dispatched at least three days before the issue opens section 622

For private companies, period can be reduced with 90% member consent MCA Notification dated 562015

Acceptance period not less than fifteen days or more than thirty days section 621ii

Can be reduced to seven days as per amendment rule 12A of Companies Share Capital and Debentures Rules, 2014

Shareholders can renounce their rights to a third party, unless restricted by company articles

Unaccepted shares can be disposed of by directors in the company's best interest

Renounced shares can be allotted to other shareholders or third parties, based on resolution

Private companies not required to make rights offers under the 1956 Act 2013 Act does not provide similar relaxation

Can restrict transfer of shares, affecting renunciation rights

If share transfer is stayed by court or refused by the company, rights issue for those shares is kept in abeyance section 126b

Indian companies can issue rights/bonus shares to nonresident shareholders, adhering to sectoral caps and other laws

Offer price to nonresidents must align with resident shareholders, with reporting to RBI within 30 days

Established that only one preemptive offer is to be made

Offer of rights shares is an 'invitation to offer' right fructifies only upon acceptance

Observed that rights issue does not convert into a public issue even if many members renounce their rights

Held valid a resolution specifying renunciation only in favor of existing members

Rights issue may result in fractional shares companies usually permit consolidation

Listed companies must issue coupons for fractional rights unless decided otherwise

Shareholders can apply for additional shares beyond their allocated rights

Unsubscribed shares are allotted equitably among applicants balance refunded

SEBI guidelines require adequate publicity for rights issues

Shareholders can apply even if they haven't received the letter of offer

MCA circular allows flexibility in dispatching notices during the pandemic MCA circular No 27/2020 dated 382020

Report in form FCGPR must be submitted to the regional office of RBI within 30 days of rights issue to nonresidents

Ensures equitable share distribution and maintains voting rights

Subject to legal framework and compliance requirements

Noncompliance can lead to legal consequences and void issuances

Rights issue must align with Companies Act, SEBI regulations, and FEMA provisions