Question

Justify the following statement.

Company has to fulfill certain provisions while making Right Issue.

Answer 1

The following provisions company has to fulfill while making Rights Issue:

1. Rights shares are sold to the existing shareholders at a price which is lesser than its market price.
2. A company has to send a Letter of offer to the
   existing shareholders at the time of issuing Rights shares.
3. The letter of offer shall mention:
   • The number of shares offered.
   • The period of offer i.e. offer is valid for a period not less than fifteen days and not exceeding thirty days from the date of the offer.
   • The right to renounce i.e. the shareholders have a right to give up their shares in favour of any other person.
4. The letter of offer can be sent by registered post, speed post, courier, or through electronic mode.
5. If the shareholder does not respond to the Rights Issue offer within a stipulated time, it is implied that he is not interested in the offer and the company can offer the unsold shares to new investors.
6. The company has to obtain a minimum subscription i.e. 90% of the issue.