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Rights Share

sivaram (Asst Mgr-Taxation) (6918 Points)

26 February 2011

Yesterday I posted certain things which i wanted to know about right shares and practising company secreataries have replied to that but i have certain doubts on that

1.How can Rights shares be sold without subscribing for it please explain how ?

2.What is meant by Renounciation ? kindly explain it to a layman

3.When rights shares are issued share due entry will be made as

Dr Share Application

Cr Share Capital

Here one who was offered rights need not subscribe to it and quota remains unfilled then what is done to this entry passed in books as i have received a reply entries will not be reversed .please explain this

Anticipating valaubale replies from practising company secretaries in this regard

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1 Replies

Shridhi Jain (Company Secretary) (1678 Points)
Replied 26 February 2011

Sir,

First of all let me explain that right shares are not different from normal shares except the fact that those shares are firstly offered to the existing members of the company. They are called right shares bcoz company offer the shares firstly to the existing members and members have the very first right to subscribe for that, if they want.

If you are not subscribing the shares then how can u sold that ? Its not possible. But yes, you can transfer your right to subscribe those shares in favour of someone else, with consideration or without consideration. The same is called renunciation. In other words, renunciation means tranfering your right to subscribe for shares to someone else.

Company will pass the entry :

Sh. app Dr. TO Sh. cap. (for offering the shares to subscribe)

Cash/Bank Dr. TO Sh. App. (for the amount received wen the shares are taken up by the members/outsiders)

If some shares remain unsubscribed (due to the fact that existing share holders do not subscribe for the full shares offered) then the same is issued to the general public (in case of pub. co.).

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