Sec. 81(1) of the Companies Act, 1956, states that right shares are those shares which are issued after the original issue of shares but having an inherent right of the existing shareholders to subscribe to these shares in proportion to their holding.
What is right share?
Rights share, also known as the Rights issue, is an offer given to the extant shareholders of a company to purchase additional shares. Under this offer, the company provides its shareholders with securities called rights.
What is the benefit of right share?
Advantages of Right Issue
Right issue of shares is an opportunity for current shareholders to increase their stake in a company at a reduced cost. It is cheaper than a public share issue. The company saves a significant amount of money, such as underwriting fees, advertisement cost and so on.
What do you mean by issue of right shares?
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. In a rights offering, each shareholder receives the right to purchase a pro-rata allocation of additional shares at a specific price and within a specific period (usually 16 to 30 days).
Who can buy right share?
In order to apply for rights issues, one has to be a shareholder of the company. What determines if you are a valid stockholder? Well, if you hold at least 1 share (or even a fraction of a share) before the announced book closure date, you are eligible to apply for right shares of the company.
Can we sell right issue shares?
The shareholders not willing to subscribe to their rights issue can sell their rights in the open market through the rights entitlement trading platform of the stock exchange or via off-market transaction. This is known as the renunciation of rights shares.
How can I participate in right issue?
The process of applying for a rights issue is through ASBA (Applications Supported by Blocked Amount). If your bank supports it, you can apply online just like an IPO. If not then you would have received a courier of the Composite Application Form (CAF) from RTA (Registrar and Transfer Agent) of the company.
How do you treat right shares?
The accounting treatment of rights share is the same as that of issue of ordinary shares and is as follows: Bank a/c Dr. In case rights shares are being offered at a premium, the premium amount is credited to the securities premium account.
What are the types of shares?
Most classes of share will fall into one of the below categories of types of share:
- 1 Ordinary shares.
- 2 Deferred ordinary shares.
- 3 Non-voting ordinary shares.
- 4 Redeemable shares.
- 5 Preference shares.
- 6 Cumulative preference shares.
- 7 Redeemable preference shares.
Is right issue good or bad?
The market may interpret a rights issue as a warning sign that a company could be struggling. This might even cause investors to sell their shares, which would bring the price down. With an increased supply of shares available following a rights issue, this could be very bad news for a company’s market value.
How does right issue affect share price?
Rights Issue Impact on Share Price
When a company offers the right issue its share price gets diluted and is likely to go down post the issue due to an increase in the number of shares floating in the market.
What are the advantages of share issue?
Shares offer flexibility: the company has full control over the number of shares it distributes, the cost of the shares, and when the shares will be distributed. The company can issue shares at any stage if it requires more money. The company also has the power to repurchase shares that have been issued already.