Further Issue

Yes Mitali, you are right Sectino 81(IA) would not apply in your case as you are allotting shares to the existing shareholders in proportion to the paid up capital. Thus section 81(1)(a) would apply and only Ordinary resolution is required to be passed.

only passing OR is sufficient.

Are there any other formalities to be observed besides conducting GM, passing OR and filing Form 2?

Like any advertisement is reqd. to be given etc.?

PROCEDURE FOR ISSUE OF RIGHT SHARES BY UNLISTED COMPANY

1. When the Board of directors decides to make a right issue, the Board will accord

approval to convene a general meeting to take the approval of members for

following matters:—

(a) for increasing the authorised capital of the company wherever necessary;

(b) for obtaining the approval of members to increase the issued capital by such

amount as has been proposed;

(c) to authorise the Board to offer the further shares to the members in such

proportion and at such price as the Board may decide;

(d) to authorize directors/officers of the company to comply with the various

formalities relating to the rights issue and to take all such further action in

the matter as are considered necessary and expedient.

2. If the broad object of issuing further shares was to transform the respondent into

minority, the issue was held to be violative of section 81(1)(a). [Jadabpore Tea

Co. Ltd. v Bengal Dooars National Tea Co. Ltd. (1984) 55 Comp Cas 160 (Cal)

(DB)]

3. If the company is in no need of further capital, directors are not entitled to use

their power of issuing shares merely for the purpose of maintaining their or their

friends, relatives control over the affairs of the company. [Nanalal Zaver v

Bombay Life Assurance Co. Ltd. AIR 1950 SC 179: (1950) 29 Comp Cas 179

(SC)]

4. Ensure that there are no calls in arrears. If calls in arrears are not received, take

steps for forfeiture of shares and to make those shares fully paid up by issuing

forfeited shares to other persons.

5. If the capital is to be utilised for new project or substantial expansion of the

existing project, make necessary application(s) for licence(s)/permission(s).

6. The Board shall take decision in respect of the following:—

♦ Quantum of right issue

♦ Ratio in which the shares are to be offered

♦ Record date

♦ Reservation for employees, etc.

7. Convene a general meeting for obtaining necessary approvals of the

shareholders.

8. File a special resolution passed by the company in e-Form 23 electronically

along with a certified copy of the special resolution and explanatory statement

sent to the members within 30 days from the date of such resolution, with the

ROC.

9. The Board of directors would accord approval to close the Register of Members

pursuant to section 154 of the Companies Act, 1956 or fix a "Record date" for

the purpose of determining the number of right shares to which every member is

entitled on the basis of the shares in the company held by the member on the

specified date.

10. The record date shall be fixed for taking record of those members who would be

entitled to receive offer of right and shall be published in the newspaper. Ensure

that the date of closing of Register of members and share transfer books is

atleast three weeks after the company has obtained the sanction of the

shareholders.

11. After the record date is over, draw up a list of members to ascertain members

eligible to subscribe to the right shares.

12. Where the shares are to be offered to NRI shareholders also, make an

application to the Reserve Bank of India for its approval.

13. Make arrangements with bankers for acceptance of the application money. Open

a specific bank account for keeping subscripttion received against right issues.

14. Letter of Offer shall be drafted to offer the shares on a right basis to the

shareholders. It should contain the following information:

♦ Brief history of the company;

♦ Nature of business carried on by the company;

♦ Highlights of the financial performance for 3 to 5 years;

♦ Management perception about the future prospects of the company;

♦ Particulars of directors;

♦ Details of proposed rights issue;

♦ Number of shares held by a shareholder and number of right shares;

♦ Terms & conditions of the present issue and mode of payment.

15. The draft letter of offer will be approved at the Board meeting and thereafter

will be dispatched to the members eligible to subscribe the right issue as per the

list of members drawn up the Letter of Offer should be accompanied with

application form for subscripttion, splitting renunciation of shares, etc. Letter of

Offer should be sent to the shareholders in such a manner that they get atleast 15

days time to apply.

16. A Board meeting shall be convened for:

(a) Fixing the last date for payment of allotment money

(b) Opening of bank account for refund of excess application money

(c) Opening of bank account for acceptance of allotment money

(d) Authorising of printing of share certificate, etc.

17. The Banks will collect from the offerees or their nominees (to whom the rights

have been renounced) the forms of acceptances and the money payable upto the

last date fixed for the purpose i.e. not less than 2 weeks after. Time must be

computed as provided in section 53.

18. The Banks will forward acceptances together with lists regularly to the

company.

19. In respect of application received from NRIs, FIRC certificate is obtained from

the bankers and an application shall be made to RBI for its approval for

allotment of shares to NRIs.

20. After the last date is over, the company will ascertain the final position as

regards shares accepted, shares renounced and/or applied for and additional

shares applied for. Number of shares available for allotment to applicants for

additional shares will then be arrived at.

21. A Board meeting shall be convened for passing resolution for allotment of

shares and after the allotment, a return of allotment is filed with the ROC in e-

Form 2 within 30 days.

22. Prepare and dispatch letter of allotment or issue the share certificates within

three months from the date of allotment in accordance with the Companies

(Issue of Share Certificate) Rules, 1960.

23. Simultaneously, prepare and dispatch regret letters and refund orders to the

applicants to whom no shares have been allotted.

24. Immediately after the allotment, enter the particulars of the allottees in the

Register of Members.

Thanks a lot for explaining the whole procedure.

Originally posted by : Mitali Agarwal
	Thanks a lot for explaining the whole procedure.

U Always welcome....