Raising Capital through Rights Issue by a Private Limited Company

Raising capital through a Rights Issue is one of the most common and efficient methods for a Private Limited Company to increase its share capital while giving preference to existing shareholders.

Under the provisions of Section 62(1)(a) of the Companies Act, 2013, a company can offer new shares to its existing shareholders in proportion to their existing shareholding.

✅ What is a Rights Issue?

A Rights Issue means offering additional shares to existing shareholders in proportion to their current holdings, usually at a predetermined price.

👉 It ensures:

• No dilution of ownership without consent
• Fair opportunity to all shareholders
• Faster capital infusion without external investors

Legal Provisions

• Section 62(1)(a) of Companies Act, 2013
• Rule 13 of Share Capital & Debentures Rules (if applicable)
• Articles of Association (AOA) must authorize the issue

Step-by-Step Procedure for Rights Issue

STEP 1: Check Articles of Association (AOA)

Ensure that the Articles authorize the company to issue shares on a rights basis.
➡️ If not, first amend AOA.

STEP 2: Conduct Board Meeting

Pass Board Resolution for:

• Approval of Rights Issue
• Determination of issue price
• Fixing record date (optional)
• Drafting of offer letter

📌 Approve Letter of Offer (Form PAS-4 is not required in rights issue)

STEP 3: Send Offer Letter to Shareholders

• Offer must be sent to all existing shareholders
• Notice period: Minimum 15 days and maximum 30 days
  (Can be shortened with consent of 90% shareholders)
• The time period within which the offer shall be made for acceptance shall be not less than seven days from the date of offer.

📌 Offer must include:

• Number of shares offered
• Price of shares
• Last date for acceptance
• Right of renunciation

STEP 4: Receive Acceptance / Renunciation

Shareholders may:

• Accept the offer
• Reject the offer
• Renounce in favor of another person

STEP 5: Second Board Meeting

After closure of offer:

• Approve allotment of shares
• Pass Board Resolution for allotment

STEP 6: File Return of Allotment (PAS-3)

• File Form PAS-3 with ROC
• Time limit: Within 30 days of allotment

📎 Attachments:

• List of allottees
• Board Resolution
• Bank Statement

Important Points

• No need for Special Resolution (unlike preferential allotment)
• Valuation report is not mandatory
• Offer must be proportionate to existing shareholding
• Renunciation must be clearly allowed
• Funds should be received before allotment

Rights Issue vs Preferential Allotment

Basis	Rights Issue	Preferential Allotment
Section	62(1)(a)	62(1)(c)
Approval	Board Resolution	Special Resolution
Valuation	Not required	Mandatory
Allottees	Existing shareholders	Selected persons

❓ FAQs

Q1. Is PAS-4 required in Rights Issue?
👉 No, PAS-4 is not required.

Q2. Can the offer period be less than 15 days?
👉 Yes, with consent of 90% shareholders.

Q3. Is valuation report required?
👉 No, not mandatory in rights issue.

Q4. Can outsiders apply in rights issue?
👉 Only if shares are renounced in their favor.

📞 CTA (Call to Action)

🚀 Planning to raise capital through Rights Issue?
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