Rights Issue of Shares

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Rights Issue of Shares by a company refers to the issue of further shares to the existing shareholders to mobilise additional share capital to the company based on their rights asper their shareholding in the company.

Rights Issue of Shares can be issued ‘At Par’ (Face Value) or at a ‘Premium’ (above Face Value).

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Overview - Rights Issue of Shares by Private Company

Private Limited companies issuing further shares shall offer the shares to existing shareholders in the ratio of their shareholding as rights shares. Issue of rights shares can be ‘At Par’ (Face Value) or at a ‘Premium’ (above Face Value).

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Rights Issue of Shares

A private limited company issuing further shares shall offer the shares to existing shareholders in the ratio of their holding as rights shares as per provisions of Section 62 of Companies Act, 2013 and Companies (Prospectus and Allotment of Securities) Rules, 2014.

Rights issue of Shares means the issue of shares by a company to the existing shareholders to mobilise additional capital to the company.

The rights given to the existing shareholder is a pre-emptive right in which they get a preference to additional capital issued in the company in order to protect their existing shareholding percentage. The rights mentioned above is not an obligation, in the sense, they can choose not to take up the shares or renounce them in others favour post which their existing shareholding will be diluted.

1. Authorised Capital & Rights Issue of Shares

Authorized Capital or Registered Capital of a company is the upper limit of capital for which a company can issue shares and collect money from shareholders. The Company issuing shares on rights basis should have sufficient unissued authorized to accommodate further shares. In case the authorised capital is insufficient to accommodate fresh issues of shares, the company should increase the authorised capital first by passing a resolution at a meeting of shareholders.

2. Value of Shares

Rights issue of Shares can be issued ‘At Par’ (Face Value) or at a ‘Premium’ (above Face Value). If the shares are offered at the face value, it is referred as Issue at Par and if the shares are offered at a higher value than Face value, it is referred as Issue ‘At Premium’. 

(a) Issue of Shares at Par

When shares are issued at the face value of shares, the issue is referred to as ‘At Par’. If the shares are offered among promoters or their associates immediately after startup of the Company, the shares are offered at Par.

For eg: If the face value of Shares is ₹10.00 and the shares are offered at ₹10.00, it is called as issue of shares ‘At Par’.

(b) Issue of Shares at Premium

When shares are issued at a price higher than the face value of shares, the share issue is referred to as ‘At Premium’. If the shares are intended to be offered to external investors to mobilise funds, the shares are generally offered ‘At Premium’. The amount collected in excess of face value of shares is called ‘Share Premium’.

For eg: If the face value of Shares is ₹10.00 and the shares are offered at ₹100.00, it is called as issue of shares ‘At Premium’. The excess amount of ₹90.00 is referred to as ‘Share Premium’.

3. Renunciation of Rights Shares 

The shareholders have the option to accept or decline or renounce the offer of rights issue. Renouncing the shares means assigning the rights to subscribe the shares to another person.

Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a rights exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person and the notice of offer of rights issue to the shareholder shall contain a statement of this rights of renunciation. 

4. Valuation of Shares

  • In case the shares are issued ‘At Par’, there is no requirement of share valuation is not required
  • In case the shares are issued ‘At Premium’,the company has to carry out share valuation under the requirements of Income Tax Act.
  • In case the Rights issue of shares are offered to a Foreign Shareholder, the company has to get a share valuation as per requirements under FEMA.

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Rights Issue of Shares - Requirements


Authorised Capital

If Authorised share capital is not sufficient to accommodate the fresh issue of shares, the company has to increase the authorised capital before starting the process of Rights Issue.

Amount of Shares to be Issued

The Board of Directors to decide the Number of Shares to be Issued as Ratio at which the Rights shares are offered to shareholders

Price for Share Issue

Rights issue of shares can be issued ‘At Par’ (Face Value) or at a ‘Premium’ (above Face Value). If the shares are offered at the face value, it is referred as Issue at Par and if the shares are offered at a higher value than Face value, it is referred as Issue ‘At Premium’.

Issue of share certificate

Process for Rights Issue of Shares


Call Board Meeting for Offer of shares.

The first step for issue of share at premium is call board meeting for issue of shares. At the meeting fix price and number of shares to be issued, offer date, closing date etc.

Sent Offer letter to shareholders and collect Application

After the Board meeting dispatch offer letter with application to existing shareholders. Collect all application within the offer period and make a list of proposed allottees.

Issue of Shares

Call board meeting for issue of shares and at the meeting pass resolution for issue of shares to eligible applicants.

File Return of Allotment with MCA

After board meeting file return of allotment in PAS-3 with respective registrar of companies.

Issue of share certificate

After allotment issue share certificate to existing allottees and make necessary entries in members register.

Documents Required


Filled application signed by shareholders/renouncee with renunciation letter if application. Also collect PAN and other information for making entries in the members register

List of Documents

  1. Application for Issue of shares
  2. PAN Card Copy

Rights Issue of Shares


Application to Subscribe right shares

Existing shareholders and renouncee can apply for shares after fulfilling terms and conditions of the offer letter.

Board meeting - Issue of Right shares

Company shall call a board meeting for approval of right issue of shares. In the board meeting necessary resolution shall be passed

Filing of return of allotement

After share are issued, company must file return of allotment in PAS-3 within 30 days from the date of issue of shares.

Faq - Rights Issue of Shares


Issue of shares to existing shareholders in the ratio of their holding is called as right issue
Issue of shares at a price above the face value of share is called premium offer. For example if the face value of share is Rs.10 and is offered for Rs.20, then Rs.10 is premium.
The right to subscription of shares in a company can be assigned to a third party. The transfer of such right is called renunciation of issue
No such requirement in Companies Act. But if shares are offered at premium Merchant Banker valuation is mandated under Income tax Act
Under Companies Act, 2013 no such requirements. But Income Tax act mandates to have valuation by Merchant Banker. If shares are issue without valuation, the share premium may be classified as Income and tax will apply on company (Angel Tax) if issue of shares is to Indian shareholders.
Private company have the authority to dispose unsubscribed shares to any person at the discretion of Board
The Board of Directors of a company can issued shares subject to the articles of the company.
The company can issue new share issues at face value or at a premium. There are no regulations for determining the amount of premium for the issue of shares. The company can not issue shares at a discount except for sweat equity shares.
Share certificate is the proof of shareholding in a company. It is mandatory for a company to issue share certificates to every shareholder after the issue of shares.
The Board of Directors are empowered to issue share certificates. A share certificate is issued under the authority of board resolution with the common seal of the company (If any) and is required to be signed by two directors and an authorized signatory. Stamp duty is to be paid on the share certificate according to the respective state stamp rules.
Share certificates should be signed by two directors and secretary/authorized person. If the company has a managing director, he/she must be one of the signatories to the certificate.

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