Ad Free CAclubindia and Daily Updates on your Mobile. Subscribe Now!

Can we issue right shares on discount to existing members ?

23 March 2021

provision of companies act allows only sweat equity shares to be issued on discount but i somewhere read that company usually issue right shares at price less than market value isn't it discount and prohibited under the act ?

Reply
Follow
Share

3 Replies

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5134 Points)
Replied 23 March 2021

The issue is called so as it gives the existing shareholders a pre-emptive right to buy new shares at a price that is lesser than market price. The Rights issue is an invitation to the existing shareholders to buy new shares in proportion to their existing shareholding.

2 Like

Upgrade to CAclubindia Pro. Subscribe Now!

Shubham Jha (127 Points)
Replied 23 March 2021

Pre-emptive right to buy new shares at a price that is lesser than market price " that means discount right ? but issuing shares at discount is prohibited unless its sweat equity or any statutory resolution or debt restructuring scheme !

Chirag (Professional) (1979 Points)
Replied 29 March 2021

Discount means ,Discount than Face Value ,while discounted price ,means less than Market Price ,it was anamoly in old act which was addressed in 2017 amendment ,You can easily understand with the example ,If companies Face Value of Shares Is Rs.10 and its issuing at Rs 8 then it's discount which is prohibited ,but in Right issue ,If Market Price/Fair Value of Share is RS.1000 while FV is Rs.10 ,now ,company will offer shares less than Market Price,which is Discounted price on Market price, lucrative to shareholders and they will subscribe ,and it's obvious else who will buy at Rs .1000 .

1 Like