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Submitted by: Alekha Mittal Class : SyBBI (4th sem.) Roll no. 28.

a. b.

Shares. Placement of Issue. Right issue of shares. Reasons for right issue. Procedures.

When the entire capital is divided into number of smaller units having fixed face value , then such unit is known as share. According to sec2(46) of the Indian Contract Act 1956, shares means share in the share capital of the company and includes stock except where distinction between stock and share is expressed and implied. The Companies Act 1956, mentions only 2 kind of shares: Equity shares . Preference shares.

Offer through prospectus Offer for sale Private placement Book building Right issue Red herring prospectus

A company always needs funds for its operations and for the fulfillment of this need securities are issued. And whenever company needs further capital then it has to further issue those securities to its existing shareholders n then it can issue them to general public. This right to existing shareholders is known as right issue. These new shares are issued to the existing shareholders as the matter of their pre-emptive right. Shares issued by the company under such right is known as right shares.

Section 81 of the Companies Act dealing with Right Issue, provides that whenever a company proposes to increase its subscribed capital by allotment of further shares any time after the expiry of two years of its formation or any time after the expiry of one year from the first allotment of shares whichever is earlier, then Such further shares (i.e., new shares) must be offered to the existing shareholders of the company. The company sends a letter of offer to the existing shareholders whose name appears on the register of members mentioning therein the number of shares to which they are entitled to in proportion to their old shareholdings. Periods of Rights offer: The offer is to be made giving a notice specifying the number of shares offered. The notice must fix a time, which should not be less that 15 days from the date of the offer within which the offer must be accepted. The notice must also inform the shareholder that if the offer is not accepted within the specified time it shall be deemed to have been declined.

Right to renounce: The equity shareholders have right to renounce all or any shares offered to him in favor of their nominee(s). Shareholders shall inform to the company within the stipulated period of their acceptance of right or the name of the nominee to whom they want to renounce their right. Application to Additional shares: An existing shareholders may apply for additional shares but a shareholder who has renounced his right in favor of any person is not entitled to apply for additional shares. Distribution of shares: Shares on becoming available on account of non-exercise of rights are allotted to shareholders who have applied for additional shares pro rata basis. Any balance of shares left after issuing, the additional shares can be sold in the open market at the market price or the issue price whichever is higher.

Four forms may be sent along with letter of rights Form A: is intended for accepting the rights and applying for additional shares Form B: is meant for purpose of renouncing the rights in favor of other person. Form C: has to be used by the person in whose favor the rights have been renounced for making application. Form D: is for the purpose of requesting for the split forms, for eg: 50% accepted and 50% rejected.
Letter of Rights:

Form A: Accepting the rights and applying the additional shares.

Form B: For renouncing the rights in favor of other person.

Form C: Used by the person in whose favor rights have been renounced for making application

Form D:

For requesting split forms .