Rights Issue
This query is : Resolved
16 October 2010
Can anyone provide the time table for a rights issue?
Regards,
Rishi
Regards,
Rishi
18 October 2010
Check for the following:
1) a) Whether within the authorized share capital of the company?
IF NOT, take steps to increase the authorized capital.
2) Period for which the issue may remain OPEN: Rights offer shall be made by Notice specifying the number of shares offered and limiting a time not being less than 15 days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined {Section 81(1)(b)}.
3) Conduct Board Meeting – Board Resolution approving the following:
• quantum of issue and the proportion of rights shares.
• alteration of share capital, if necessary.
• fixation of record date/book closure.
• appointment of merchant bankers and underwriters (if necessary).
• approval of the draft letter of offer or authorization of
o managing director/company secretary to finalize the letter of offer in consultation with the managers to the issue.
o the letter of offer should conform to the requirements of the Companies Act, 1956 as prescribed in Form No.2A under Section 56(3) of the Act.
o full justification and parameters used for issue price should clearly mentioned in the letter of offer.
a) Where offering shares to persons other than existing shareholders in terms of Section 81(1A):
• Pass a special resolution in the general meeting of the company.
• Where no special resolution could be passed, but the votes cast in favour exceeds the votes cast against:
• Get the approval of the Central Government on the application made by the Board of Directors.
File requisite forms with the ROC.
4) If rights shares are to be offered to NRIs, obtain RBI approval.
5) Despatch letters of offer to shareholders by registered post.
6) The applications of shareholders who apply on plain paper and also in a standard form are liable to be rejected.
7) Make arrangement with bankers for acceptance of share application forms.
8) If the company does not receive 90% of the issue amount including the development from underwriters, the entire amount of subscription is required to be refunded within 42 days from the date of closure of the issue.
If there is delay in the refund of subscription by more than 8 days after the company becomes liable to pay subscription amount, the company will pay interest for the delayed period as per section 73(2)(2A) of the companies act, 1956.
10) Prepare a scheme of allotment.
11) Convene a board meeting and make allotment of shares.
12) File the return of allotment in Form No.2 with the registrar of companies within 30 days of allotment.
Some important points:
a) Where a Public company invites public subscription, prospectus must have been filed with the ROC.
Where no prospectus inviting public subscription has been issued, a statement in lieu of prospectus must have been filed at least 3 days before making the first allotment.
*******************
Checklist of rights issue in case of a listed company
Applicable only in case of listed companies coming out with a rights issue in excess of Rs.50 lakhs.
Check for the following:
Whether the rights issue is authorized by the AOA? If not, take steps to amend the artilces.
1) Whether within the authorized share capital of the company?
IF NOT, take steps to increase the authorized capital. Also file Form No.5 with the ROC and Form No. 23, if applicable.
2) Notify the stock exchange concerned the date of Board meeting at which the rights issue is proposed to be considered at least 7 days in advance of the meeting.
3) Rights issue shall be kept open for at least 30 days and not more than 60 days.
4) Convene board meeting and place before it the proposal for the rights issue.
The Board should decide on the following:
• Quantum of issue and the proportion of rights shares.
• Alteration of share capital, if necessary.
• Fixation of record date/book closure.
• Appointment of merchant bankers and other intermediaries (merchant bankers take care of appointment of intermediaries, provided the same has been provided for in the MOU).
• Approval of the draft letter of offer or authorization of
• Managing director/company secretary to finalize the letter of offer in consultation with the managers to the issue, the stock exchange and the SEBI.
• The letter of offer should conform to the requirements of the Companies Act, 1956 as prescribed in Form No.2A under Section 56(3) of the Act.
• Full justification and parameters used for issue price should clearly mentioned in the letter of offer.
5) Immediately after the Board Meeting notify the concerned stock exchanges about the particulars of Board’s decision.
6) Where offering shares to persons other than existing shareholders in terms of Section 81(1A):
• Pass a special resolution in the general meeting of the company.
• Where no special resolution could be passed, but the votes cast in favour exceeds the votes cast against:
• Get the approval of the Central Government on the application made by the Board of Directors.
7) If rights shares are to be offered to NRI’s obtain RBI’s approval.
8) Forward 6 sets of letter of offer to the concerned stock exchanges.
9) Six copies of all notices, resolutions and circulars relating to new issue of capital prior to their despatch to the shareholders;
10) Despatch letters of offer to shareholders by registered post.
11) Advertisement requirements:
• Check that an advertisement giving the date of completion of despatch of letter of offer has bee released in at least an English National Daily, one hindi national paper and a regional language daily where registered office of the issuer company is situated.
• Check that the advertisement contains the list of centres where shareholders or person entitled to rights may obtain duplicate copies of composite application forms (CAFs) in case they do not receive original application form alongwith the prescribed format on which application may be made.
12) The applications of shareholders who apply on plain paper and also in a standard form are liable to be rejected.
13) Make arrangement with bankers for acceptance of share application forms.
14) If the company does not receive 90% of the issue amount including the devolvement from underwriters, the entire amount of subscription is required to be refunded within 42 days from the date of closure of the issue.
If there is delay in the refund of subscription by more than 8 days after the company becomes liable to pay subscription amount, the company will pay interest for the delayed period as per section 73(2)(2A) of the companies act, 1956.
15) Prepare a scheme of allotment in consultation with the stock exchange.
16) Convene a board meeting and make allotment of shares.
17) File the return of allotment in Form No.2 with the registrar of companies within 30 days of allotment.
18) Make an application to the stock exchange(s) where the company’s shares are listed for permission of listing new shares.
19) Check that a 3 day and 50 day monitoring report has been sent to the SEBI.
1) a) Whether within the authorized share capital of the company?
IF NOT, take steps to increase the authorized capital.
2) Period for which the issue may remain OPEN: Rights offer shall be made by Notice specifying the number of shares offered and limiting a time not being less than 15 days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined {Section 81(1)(b)}.
3) Conduct Board Meeting – Board Resolution approving the following:
• quantum of issue and the proportion of rights shares.
• alteration of share capital, if necessary.
• fixation of record date/book closure.
• appointment of merchant bankers and underwriters (if necessary).
• approval of the draft letter of offer or authorization of
o managing director/company secretary to finalize the letter of offer in consultation with the managers to the issue.
o the letter of offer should conform to the requirements of the Companies Act, 1956 as prescribed in Form No.2A under Section 56(3) of the Act.
o full justification and parameters used for issue price should clearly mentioned in the letter of offer.
a) Where offering shares to persons other than existing shareholders in terms of Section 81(1A):
• Pass a special resolution in the general meeting of the company.
• Where no special resolution could be passed, but the votes cast in favour exceeds the votes cast against:
• Get the approval of the Central Government on the application made by the Board of Directors.
File requisite forms with the ROC.
4) If rights shares are to be offered to NRIs, obtain RBI approval.
5) Despatch letters of offer to shareholders by registered post.
6) The applications of shareholders who apply on plain paper and also in a standard form are liable to be rejected.
7) Make arrangement with bankers for acceptance of share application forms.
8) If the company does not receive 90% of the issue amount including the development from underwriters, the entire amount of subscription is required to be refunded within 42 days from the date of closure of the issue.
If there is delay in the refund of subscription by more than 8 days after the company becomes liable to pay subscription amount, the company will pay interest for the delayed period as per section 73(2)(2A) of the companies act, 1956.
10) Prepare a scheme of allotment.
11) Convene a board meeting and make allotment of shares.
12) File the return of allotment in Form No.2 with the registrar of companies within 30 days of allotment.
Some important points:
a) Where a Public company invites public subscription, prospectus must have been filed with the ROC.
Where no prospectus inviting public subscription has been issued, a statement in lieu of prospectus must have been filed at least 3 days before making the first allotment.
*******************
Checklist of rights issue in case of a listed company
Applicable only in case of listed companies coming out with a rights issue in excess of Rs.50 lakhs.
Check for the following:
Whether the rights issue is authorized by the AOA? If not, take steps to amend the artilces.
1) Whether within the authorized share capital of the company?
IF NOT, take steps to increase the authorized capital. Also file Form No.5 with the ROC and Form No. 23, if applicable.
2) Notify the stock exchange concerned the date of Board meeting at which the rights issue is proposed to be considered at least 7 days in advance of the meeting.
3) Rights issue shall be kept open for at least 30 days and not more than 60 days.
4) Convene board meeting and place before it the proposal for the rights issue.
The Board should decide on the following:
• Quantum of issue and the proportion of rights shares.
• Alteration of share capital, if necessary.
• Fixation of record date/book closure.
• Appointment of merchant bankers and other intermediaries (merchant bankers take care of appointment of intermediaries, provided the same has been provided for in the MOU).
• Approval of the draft letter of offer or authorization of
• Managing director/company secretary to finalize the letter of offer in consultation with the managers to the issue, the stock exchange and the SEBI.
• The letter of offer should conform to the requirements of the Companies Act, 1956 as prescribed in Form No.2A under Section 56(3) of the Act.
• Full justification and parameters used for issue price should clearly mentioned in the letter of offer.
5) Immediately after the Board Meeting notify the concerned stock exchanges about the particulars of Board’s decision.
6) Where offering shares to persons other than existing shareholders in terms of Section 81(1A):
• Pass a special resolution in the general meeting of the company.
• Where no special resolution could be passed, but the votes cast in favour exceeds the votes cast against:
• Get the approval of the Central Government on the application made by the Board of Directors.
7) If rights shares are to be offered to NRI’s obtain RBI’s approval.
8) Forward 6 sets of letter of offer to the concerned stock exchanges.
9) Six copies of all notices, resolutions and circulars relating to new issue of capital prior to their despatch to the shareholders;
10) Despatch letters of offer to shareholders by registered post.
11) Advertisement requirements:
• Check that an advertisement giving the date of completion of despatch of letter of offer has bee released in at least an English National Daily, one hindi national paper and a regional language daily where registered office of the issuer company is situated.
• Check that the advertisement contains the list of centres where shareholders or person entitled to rights may obtain duplicate copies of composite application forms (CAFs) in case they do not receive original application form alongwith the prescribed format on which application may be made.
12) The applications of shareholders who apply on plain paper and also in a standard form are liable to be rejected.
13) Make arrangement with bankers for acceptance of share application forms.
14) If the company does not receive 90% of the issue amount including the devolvement from underwriters, the entire amount of subscription is required to be refunded within 42 days from the date of closure of the issue.
If there is delay in the refund of subscription by more than 8 days after the company becomes liable to pay subscription amount, the company will pay interest for the delayed period as per section 73(2)(2A) of the companies act, 1956.
15) Prepare a scheme of allotment in consultation with the stock exchange.
16) Convene a board meeting and make allotment of shares.
17) File the return of allotment in Form No.2 with the registrar of companies within 30 days of allotment.
18) Make an application to the stock exchange(s) where the company’s shares are listed for permission of listing new shares.
19) Check that a 3 day and 50 day monitoring report has been sent to the SEBI.
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18 October 2010
Thanks very much Mitesh.
Regards,
Rishi
Regards,
Rishi
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