Rights Issue of Shares by a Company
A rights issue of shares offers new shares to your existing shareholders first, in proportion to what they already hold. We prepare the board resolution and offer notice, run the 15 to 30 day offer window, handle allotment and file PAS-3 on the MCA V3 portal.
What it is
A rights issue is a further issue of shares in which the company must first offer the new shares to its existing equity shareholders, in proportion to their paid-up capital. Each shareholder can accept, decline or, unless the articles say otherwise, renounce the offer in favour of someone else.
The law is Section 62(1)(a) of the Companies Act, 2013, read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. The allotment is reported to the Registrar in Form PAS-3 under Section 39 on the MCA V3 portal. This page covers unlisted companies; listed companies must also follow SEBI’s rules.
Who it applies to
Companies raising money from current owners
Promoters and shareholders who want to bring in fresh funds without changing who owns what.
Companies that need capital but not a new investor
A Faridabad manufacturing company that needs working capital for a new plant, with family shareholders ready to put money in.
Companies converting loans into equity
Say two promoters have lent ₹50 lakh to the company over the years. A rights issue lets them turn that loan into shares in proportion to their holdings.
Why it matters
Protects every shareholder’s stake
Nobody is diluted unless they choose not to take up their share. That is the point of the pre-emption right in Section 62.
No outside investor needed
Existing shareholders fund the company directly, so there is no negotiation over a new investor’s rights or valuation.
Flexible if some shareholders decline
Shares not taken up can be disposed of by the board in a way that is not disadvantageous to the shareholders and the company, if the offer notice allows it.
Documents required
From the company
- Board resolution approving the issue, the price and the offer terms
- Offer notice to every equity shareholder
- Evidence that the authorised capital covers the new shares
- Valid digital signature certificate of a director
From each shareholder
- Letter of acceptance, partial acceptance or renunciation
- Payment from the shareholder’s own bank account
- Demat account details, where the company issues in demat form
For allotment and filing
- Board resolution allotting the shares
- List of allottees in the prescribed format
- Altered MoA and SH-7, if authorised capital had to rise first
- Share certificates or demat credit confirmation
Rights issue vs private placement
| Rights issue | Private placement | |
|---|---|---|
| Who is offered | Existing equity shareholders, in proportion to holdings | Identified persons, up to 200 in a financial year |
| Approval | Board resolution, if the articles and authorised capital allow | Special resolution |
| Offer period | 15 to 30 days | Allot within 60 days of receiving money |
| Offer form | Offer notice under Section 62(1)(a) | PAS-4 and record in PAS-5 |
If you want money from outsiders instead, see our page on share allotment and PAS-3. Some companies run a rights issue first and place any balance with outsiders.
How it works
Check authorised capital and the articles
We confirm the authorised capital covers the new shares and that the articles do not bar the issue or renunciation. If capital is short, we start with an increase in authorised capital.
Pass the board resolution
The board fixes the number of shares, the price, the offer period and the basis of entitlement. For example, 1 new share for every 4 held.
Send the offer notice
Notice goes to every equity shareholder by registered post, speed post, courier or electronic mode, at least three days before the issue opens. It states the number of shares offered, the acceptance deadline and the right to renounce.
Collect acceptances and money
Shareholders accept in full or part, decline or renounce. In practice, money should come into the company’s bank account from each shareholder’s own account.
Allot and file PAS-3
The board allots shares to those who accepted. We file PAS-3 within 30 days of allotment, issue certificates or credit demat accounts, and update the registers.
Timelines
Offer open for 15 to 30 days
Section 62(1)(a) fixes the period at not less than 15 days and not more than 30 days from the offer date. Private companies can shorten it with member consent, as the FAQ below explains.
Notice at least 3 days before opening
The offer notice must be dispatched to every equity shareholder at least three days before the issue opens.
PAS-3 within 30 days
The return of allotment goes to the Registrar within 30 days of allotment under Section 39(4). Share certificates follow within two months under Section 56(4)(b).
What happens if the rules are missed
Late PAS-3
Section 39(5) imposes a penalty of ₹1,000 a day or ₹1 lakh, whichever is less, on the company and every officer in default. Additional ROC fees also apply, at 2× to 12× the normal fee.
A shareholder is skipped
Here is the catch: if one shareholder is left out of the offer, the issue is open to challenge. They can approach the NCLT, so serve notice on every equity holder and keep proof.
Authorised capital is short
The company cannot allot more shares than its authorised capital allows. Late SH-7 attracts additional fees of 2.5% a month for six months and 3% a month after.
Frequently asked questions
What is a rights issue of shares?
A rights issue of shares is an offer of new shares to existing equity shareholders in proportion to their holdings, under Section 62(1)(a). Each shareholder may accept, decline or renounce. It protects existing owners from dilution. The board runs the process, and the allotment is reported to the ROC in PAS-3 within 30 days.
How long must a rights offer stay open?
At least 15 days and at most 30 days from the date of the offer, under Section 62(1)(a). The notice must go out at least three days before the issue opens. Private companies have an exemption notified on 5 June 2015 that allows a shorter period with the consent of at least 90% of members. We check which route suits you.
Can a shareholder renounce the right to someone else?
Yes, unless the articles say otherwise. Section 62(1)(a) lets a shareholder renounce the offered shares in favour of another person, and the offer notice must state this right. Some companies restrict it, so we read the articles before drafting the notice.
What happens to shares nobody takes up?
The board can dispose of them in a manner that is not disadvantageous to the shareholders and the company. Section 62(1)(a) allows this after the offer period ends or after every shareholder has declined in writing. The board often offers the balance to willing existing shareholders first, or to an outside investor through a private placement.
Do we need a shareholders’ resolution for a rights issue?
Usually the board resolution is enough, because Section 62(1)(a) leaves the offer to the board. You do need enough authorised capital, so an increase may need a general meeting. If the articles must change, a special resolution under Section 14 is required. We read the articles and the capital clause first.
Does a rights issue need a valuation report?
Not for the rights price itself. Section 62(1)(c) requires a registered valuer’s report for a preferential allotment to outsiders, not for a rights offer to existing holders. We tell you whether a report is needed in your case.
Which forms are filed after a rights issue?
PAS-3 within 30 days of allotment is the main one. If authorised capital was raised first, SH-7 is filed within 30 days of the resolution, and MGT-14 if a special resolution was passed. A company that is not a small company must also issue securities in demat form. We prepare all of these in the right order.
Can a private limited company make a rights issue?
Yes. Section 62 applies to every company with share capital, public or private. Private companies also have the 5 June 2015 exemption allowing a shorter offer period with 90% member consent. The process is otherwise the same: board resolution, offer notice, acceptance, allotment and PAS-3 filing on the MCA V3 portal.
What it costs
Our fee plus the government fee that applies to your case, quoted before you commit. Tell us the situation and we will price it exactly.
Government costs depend on authorised capital. PAS-3 carries a normal ROC fee of ₹200 to ₹600 by authorised capital, multiplied 2× to 12× if filed late. An increase in authorised capital has its own ROC fee and stamp duty. Depository charges are paid to the depository.
Ready to begin?
Tell us how much you want to raise from your shareholders, and we will draft the offer notice and plan the timeline from board resolution to PAS-3.