Q.Distinguish between a rights issue and a bonus issue of shares.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →Both a rights issue and a bonus issue share one feature that makes them easy to confuse: both offer new shares to a company's existing shareholders in proportion to their current holding, rather than to outside investors. Beyond this surface similarity, however, they serve entirely different purposes and operate under entirely different legal provisions.
A rights issue, governed by Section 62(1)(a) of the Companies Act, 2013, is a genuine fundraising exercise. The company proposes to increase its subscribed capital and, before offering the new shares to anyone else, must first offer them to persons who are, on the date of the offer, holders of equity shares, in proportion to their existing paid-up capital. The shareholder must actually pay for these shares at the price the company fixes (the "rights price"), and the offer must remain open for not less than fifteen days (and, unless shortened by consent of holders of ninety per cent of paid-up capital, not more than thirty days), after which, if not accepted, it is deemed declined. The offer letter must also state whether the shareholder may renounce the right — that is, transfer the entitlement to subscribe — in favour of another person, which is why rights entitlements are often traded before the issue closes. Because real money changes hands, a rights issue genuinely increases the company's paid-up capital and its cash resources. …
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.