Rights Issue and Bonus Issue

Two of the most frequently tested methods of issue in Maharashtra HSC Secretarial Practice are ones that involve existing shareholders rather than the general public: the rights issue and the bonus issue, both governed by dedicated provisions of the Companies Act, 2013.

Section 62(1)(a) governs the rights issue. Where a company proposes to increase its subscribed capital by issuing further shares, those shares must first be offered to the persons who, on the date of the offer, are holders of the company's equity shares, in proportion, as nearly as circumstances admit, to the paid-up share capital already held by them — a pre-emptive right that protects an existing shareholder's proportionate stake in the company from being silently diluted by a fresh issue to outsiders. The offer must be made by notice specifying the number of shares offered and a time — not less than fifteen days and not more than thirty days from the date of the offer — within which the offer, if not accepted, is deemed to have been declined. The right is renounceable: unless the company's Articles of Association provide otherwise, a shareholder who does not wish to subscribe may renounce the offer, wholly or in part, in favour of another person. A rights issue is typically priced below the share's prevailing market price, which is itself the shareholder's real incentive to take it up. …