Publishing Date: 22 May, 2025
A Right Issue in an unlisted private company, governed by Section 62 of the Companies Act, 2013, offers existing shareholders the opportunity to purchase additional shares at a predetermined price, in proportion to their existing holdings. This method of capital-raising provides companies with a means to garner funds for expansion, while also maintaining equity among existing stakeholders.
- A Right Issue is an offer of additional shares made by a company to its existing shareholders, usually at a discounted price, in proportion to their current holdings.
- Existing shareholders of the company on the record date are eligible to participate in a Right Issue.
- The primary purpose of a Right Issue is to raise additional capital for the company's operations, expansion, or other strategic initiatives.
- The price of shares in a Right Issue is determined by the company's board of directors, usually based on factors such as market conditions, valuation, and regulatory requirements.
- If a shareholder does not exercise their rights in a Right Issue, their portion of the additional shares may be allotted to other shareholders or investors.
- In most cases, only existing shareholders are eligible to participate in a Right Issue. However, companies may sometimes allow non-shareholders to participate under certain conditions.
- The timeline for a Right Issue typically includes announcement, record date, offer period, allotment, and listing of additional shares, as per regulatory requirements and company policies.
- Shareholders are usually notified through offer letters or notices, specifying the number of rights they are entitled to and the terms of the Right Issue.
- A Right Issue involves issuing additional shares to existing shareholders at a predetermined price, whereas a Bonus Issue involves issuing free additional shares to existing shareholders based on their current holdings.
- Yes, shareholders may renounce or transfer their rights to subscribe to additional shares in a Right Issue to another person, subject to company policies and regulatory approvals.
- Companies must comply with the provisions of the Companies Act, 2013, and relevant regulations issued by regulatory authorities such as the Securities and Exchange Board of India (SEBI).
- Securities are allotted to shareholders who have exercised their rights in proportion to their existing holdings, subject to availability and oversubscription.
- In case of oversubscription, the allotment of additional shares may be made on a pro-rata basis or through a lottery system, as determined by the company's board.
- Shareholders should consult with tax advisors regarding any tax implications of participating in a Right Issue, including potential capital gains or losses.
- Minority shareholders have the same rights as majority shareholders to participate in a Right Issue and receive additional shares in proportion to their existing holdings.
- As per the Provisions of the companies act, 2013 there are no clear indication on the valuation requirement in case of the Right Issue. However, It is advisable to take valuation report in to arrive at Fair Market Value of securities to be Issued.
-According to section 62 of the Companies Act, 2013 read with rule 13 of The Companies (Share Capital and Debentures) Rules, 2014 “shares or other securities” means equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date.
Rights Shares issued to shareholders do not attract any incidence of taxation. However, at the time of sale by shareholders, such sale of shares attracts capital gain tax.
Capital Gain Tax
When the shareholder actually sells the shares. The incidence of sale will attract capital gains tax. The gains can be either long term or short term, depending on the period for which the employee has held the shares. In case of unlisted equity shares, period of holding is 24 months. Short term capital assets – when sold within 24 months of holding them and long term capital assets – when sold after 24 months of holding them. Short term capital gains (STCG) are taxed at income tax slab rates applicable to individuals. Long-term capital gains (LTCG) are taxed after applying the indexation to the original cost of purchase. Indexed gains so calculated shall be taxed at a flat rate of 20% plus applicable surcharge and education cess.
Company shall issue share certificate in Form SH-01 Within 60 days from the date of allotment
CS Harshita Jhawar is a Company Secretary and content marketer at www.vaidamconsultancy.com, known for blending legal expertise with engaging storytelling. Passionate about compliance and corporate law, she simplifies complex regulations for her readers. Off-duty, she enjoys traveling, photography, and thought-provoking reads—driven by curiosity and a love for clarity.
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