Transferability of securities - Private Companies

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This discussion clarifies the process of share transfer during a rights issue in private companies. When existing shareholders renounce their right to buy new shares, these rights are typically sold to new investors. Consequently, new shares are then issued to these purchasers, rather than being directly transferred between existing members. This mechanism allows companies to raise capital and expand their shareholder base.

Parthesh

Parthesh (Querist)

19 July 2022 In respect of shares which are proposed to be issued on a right basis, existing members would have a right to renounce shares likely allotted to them. If the existing shareholders renounce their shares then these shares will be allotted to the renounce first time therefore no transfer will take place. I cant understand this paragraph.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

11 July 2024 The paragraph you've mentioned seems to describe the process of rights issue of shares and the concept of renunciation of those rights by existing shareholders. Let's break down the key points:

1. **Rights Issue**: A rights issue is a way for a company to raise capital by offering existing shareholders the right to buy additional shares in proportion to their current holdings.

2. **Renunciation of Rights**: Existing shareholders who do not wish to subscribe to these additional shares have the option to renounce their rights. This means they can transfer their entitlement to purchase these shares to another party.

3. **No Transfer**: The statement "then these shares will be allotted to the renounce first time therefore no transfer will take place" suggests the following:
- If existing shareholders renounce their rights to subscribe to new shares, those rights are typically offered to other investors who are willing to purchase them.
- When these rights are renounced, they are usually sold (often to new investors) rather than transferred directly between existing shareholders.
- The term "renounce first time" might refer to the renouncement being done for the first time by the shareholder.

4. **Outcome**: As a result of renunciation:
- The renounced rights are sold to new investors.
- New shares are then issued to these new investors who purchased the renounced rights.
- The process allows the company to raise additional capital from new investors who were not originally shareholders.

In essence, the paragraph is explaining that when existing shareholders renounce their rights to purchase additional shares in a rights issue, those renounced rights are typically sold to new investors, and new shares are issued to these new investors rather than being transferred directly among existing shareholders. This process enables the company to expand its shareholder base and raise necessary funds for its operations or growth initiatives.

Parthesh

Parthesh (Querist)

11 July 2024 Superb explanation sir, salute to you. Thank you sir.

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