How does a company issue a rights issue of shares to existing shareholders?

Question

My company wants to raise further capital by offering new shares to existing shareholders first. What does the law require? I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "How does a company issue a rights issue of shares to existing shareholders?" turns on Companies Act 2013, Section 62, Companies Act 2013, Section 42 and Companies (Share Capital and Debentures) Rules 2014, Rule 12. The points below set out the position and then what to do about it, in the order it should be done.

Section 62(1)(a) requires a company proposing to issue further shares to first offer them to existing equity shareholders in proportion to their existing shareholding, known as a rights issue.

The offer letter must specify the number of shares offered and remain open for acceptance for not less than 15 days and not more than 30 days from the date of offer.

Shareholders can renounce their rights entitlement in favour of another person unless the articles restrict such renunciation, and unaccepted shares can be disposed of by the board in a manner not disadvantageous to shareholders.

A company can issue shares other than on a rights basis, such as through preferential allotment or private placement, only after passing a special resolution as required under Section 62(1)(c) read with Section 42.

Failure to follow the rights issue procedure or pricing rules can be challenged by minority shareholders as oppressive conduct under Sections 241 and 242.

What this means for you: 1) Determine the entitlement ratio and issue price for the rights offer; 2) Send the letter of offer to all eligible shareholders with the statutory acceptance window; 3) Allot shares to shareholders who accept and handle renunciations as permitted; 4) File Form PAS-3 with the Registrar after allotment is completed.

Where the facts are disputed, what usually decides a rights issue section 62 matter is the paper trail — dated complaints, acknowledgments and written replies under Companies Act 2013, Section 62. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.