A rights issue is a dividend of
subscription rights to
buy additional securities in a company made to the company’s existing security
holders. When the rights
are for equity securities, such as shares,
in a public company, it is a non-dilutive pro rata way to raise capital.
Troubled companies typically
use rights issues to pay down debt, especially when they are unable to borrow more money. But
not all companies that pursue rights offerings are shaky. Some with clean balance sheets use rights
issues to fund acquisitions and growth strategies. For reassurance that it will
raise the finances, a company will usually, but not always, have its rights
issue underwritten by an investment bank.
Bonus Issue –
If the article
of the company provides so, the company can capitalize its profits by issuing
fully-paid bonus shares. Issue of bonus shares is common when the company is
prosperous and accumulates large distributable profits. The company converts
these accumulated profits into capital and divides the capital among the
existing members in proportion to their entitlements. Members do not have to
pay any value of such shares and they are issued free of cost.
Section 63 of
2013 act, lays down the procedure to issue bonus shares. A company may issue
fully paid up bonus shares to its members out of –
capital redemption reserve account.
By issuing the prospectus
the company informs the public about its Initial Public Offering. Distribution
of application forms for shares and other securities is invitation to treat as
the company invitees’ public for investment. On the basis of prospectus, when
any person sends his application for shares, this becomes his offer for
allotment of shares, when his offer is accepted, it is called allotment of shares:
Minimum Subscription – Minimum Subscription is the amount required, in the
opinion of the directors of the company, to meet out the purchase price of any property,
working capital and preliminary expenses. Presently, minimum subscription is
ninety percent subscription against the amount offered to the public. No
allotment will be made if the minimum subscription is not received.
Application Money – Application money must not be
less than five percent of the nominal value of the share. Shares cannot be
allotted until the company receives the application money in cash. If shares
are allotted without receiving the application money in cash, the allotment
Statement in Lieu of Prospectus – When a prospectus has not been issued, no allotment
shall be made unless at least three days before a statement in lieu has been
filed with the registrar.
Opening of Subscription List: Shares cannot be allotted until the beginning of the
fifth day from the date of the issue of the prospectus.
for Dealing of shares at Stock Exchanges: Every
company before the issue of prospectus for subscriptions of shares or purchase
of debentures has to make an application before the issue