Can we issue right shares on discount to existing members ?
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 ?
Replies (3)
Quick Summary
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.
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 !
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 .
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