Rights issue
A rights issue is an offer made by a company to its existing shareholders, giving them the opportunity to buy additional shares at a discounted price directly from the company, rather than on the open market. The number of shares a shareholder can purchase through a rights issue is based on their existing shareholding.
Overview
A rights issue is a method used by companies to raise additional capital from existing shareholders by offering them the opportunity to purchase extra shares at a price lower than the current market value. The allocation of these shares is done on a pro-rata basis, according to each shareholder’s existing holdings.
Shareholders have the right, but not the obligation, to purchase the additional shares. This allows them the option to increase their ownership in the company.
Common reasons for executing a rights issue include:
Raising substantial funds for business expansion without incurring debt and associated fixed interest payments.
Obtaining equity capital when debt financing is unavailable, unsuitable, or too costly.
Improving the company’s debt-to-equity ratio or funding acquisitions.
Raising capital to pay off existing debt and improve financial health.
Benefits of Rights issue
A rights issue is a method by which a company raises additional capital by offering new shares to its existing shareholders, usually at a price lower than the market rate.
This process does not require the company to pay underwriting fees, making it a cost-effective fundraising method.
Existing shareholders are given preferential treatment—they have the right (but not the obligation) to purchase additional shares in proportion to their existing holdings, within a specified time frame.
Offering shares at a discount helps maintain shareholder trust and rewards their loyalty to the company.
A rights issue allows the company to raise funds without increasing its debt burden.
If current shareholders fully subscribe to the rights issue and do not sell their rights to outsiders, they maintain their proportional ownership and control over the company.
Checklist/Requirements
Corporate Identification Number (CIN) / Name of the Company
Valid Digital Signature Certificate (DSC) of Existing Director
Type of Security to Be Issued
(e.g. Equity, Preference Shares, or Debentures)
Investor Status
(Specify whether the investor is an existing shareholder or a new investor)
Proposed Investment Size
Percentage or Number of Shares to Be Issued to the Investor
Investor’s Details:
Name
Address
Occupation
Nationality
Current Debt Structure of the Company
Copy of PAN (Permanent Account Number) of All Investors
Bank Statement
(As proof of receipt of the investment amount)
Process of Rights issue
Step 1:Â Raise a request with us, discussion with BBNC team
Step 2:Â Client to share the information/documents required
Step 3:Â Convene and hold Meeting and pass Resolution
Step 4:Â BBNC to share documents with client
Step 5:Â Client to share executed documents
Step 6:Â BBNC to file e-Form with Ministry
Step 7:Â BBNC to Pay Stamp Duty on Share Certificate
Step 8:Â BBNC to issue share certificate
Key Deliverables
Resolutions and Relevant Documents:
- Copies of board or shareholder resolutions and supporting documents related to the security allotment.
Filed e-Forms and Challans:
- Acknowledged copies of relevant e-forms filed with the Registrar of Companies (e.g., PAS-3)
- Proof of payment (challans) for statutory fees.
Share Certificates:
- Duly prepared and signed share certificates issued to the allottees.
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