A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. In a right offering, each shareholder receives the first right to subscribe to the shares at the discount as compared to the prevailing share price.

1. DR. RICHA SINGHAL
ASSOCIATE PROFESSOR
DEPTT. OF EAFM
S.S.JAIN SUBODH P
.G. COLLEGE, JAIPUR

2. ISSUE OF SHARES
 Companies generate funds from public and other options by issuing the
shares. The fund is beneficial as the company does not have to pay the
interest as in case of loans. Only dividend is to be distributed
depending upon the profits. The different ways of issuing shares have its
own benefits. You should know about the types and the fundamentals
behind them as an investor.
 The different types of shares issues is based upon the who are the
perspective investors, purpose of the company like to generate funds or
for the benefit of its shareholders.

3. • The shares are offered for sale in order to raise capital from the general
public, for which the company issues a prospectus.
PUBLIC ISSUE
• In a right issue, shares or convertible securities are offered to the existing
shareholders at a concessional rate, on a stipulated date, fixed by the
company itself.
RIGHT ISSUE
• It is the free additional shares distributed to the current shareholders in
the proportion of the fully paid-up equity shares held by them on a
particular date.
BONUS ISSUE
• If a company offers shares to a selected group of investors which can be
mutual funds, banks, insurance companies, pension funds and so forth, to
raise capital, is called private placement
PRIVATE
PLACEMENTS
TYPES OF SHARE ISSUE

4. RIGHT
ISSUE A rights issue is an invitation to existing
shareholders to purchase additional
new shares in the company. In a right offering,
each shareholder receives the first right to
subscribe the shares at the discount as
compared to prevailing share price.
• Right Shares are issued to existing
shareholders in Proportion of their Equity
Holding.
• Existing shareholders can trade the rights.
• Raising large amount of capital having
longer gestation period.
• Suitable in projects where debt/ loan fund is
not available.
• Company can improve debt to equity ratio.
• To payoff the debt to ease the financial
strength.

5. LEGAL
GUIDELINES  This notice will be offer. Existing shareholders can either accept
or reject this offer.
 Unless the Articles of Association of the company otherwise
specify, the offer shall be deemed to include a right exercisable
by the person concerned to renounce the shares.
 Incase the shareholders declines to accept the shares offered,
the Board of Directors may proceed to dispose off such shares
offered in such manner as they consider most beneficial to the
company.
 Right shares will be issued with 15 days notice.
 Right shares issue must not be opened more than 60 days
under SEBI guidelines. Provision of 81 will not apply on private
company. This rule will not also apply on conversion of
debentures into shares

6. RIGHT ISSUES- PROCEDURES
Conduct a board meeting and pass resolution for right
issue and approve the letter of offer.
Issue of letter of offer which shall specify the no. of
shares offered
Time limit is 15-30 days – offer to be accepted
If not accepted within time, deemed to be declined
Can be renounce within the time to any other person

7. TYPES OF RIGHTS ISSUES:
1. Renounceable Rights Issue
The shareholder has the option to buy the shares by exercising their
right or ignore the right. They can also sell or transfer their rights to
other investors in an open market.
2. Non-Renounceable Rights Issue
The shareholder cannot sell his/her rights to another investor. They
only have the option to either exercise the right or give it up.

8. ADVANTAGES
 The right issue is a fast source of raising
funds
 The right issue incurs low cost
(underwriting, advertising and brokerage
expenses could be avoided)
 The right issue provides an option for the
shareholders to maintain the same
ownership
 Raise funds without a form of debt
 The board of directors can not misuse
share issuing option
 Relative voting rights unaffected if
shareholders take up their rights.
 Control of the company is undistributed
 No dilution in the value of existing shares
 New shares issued and share capital
increase
 Helpful to increase the goodwill of
company
 Raising of capital is more certain- than IPO

9. DISADVANTAGES
 The existing shareholding percentage may
get diluted
 After the right issue share price gets
decrease (due to discount)
 Only to existing companies and not to new
companies.
 It is against overall societal considerations
of diffusion of share ownership.
 Limitation of fund raise
 The negative effect of the company’s public
image
 Price per share decreases

10. THANKS