The section 62(1)(a) of the Companies Act, 2013 plays an important role in regulating the process of issuance of additional shares of the company. If a company is looking to increase their capital or expand while protecting shareholders’ interests, this provision is crucially vital.
If you’re thinking of the company registration or are already operating your own business, knowing this section will ensure legal compliance and informed decisions. Let’s look at it in terms that are easy to understand.
What is Section 62 of the Companies Act, 2013?
Section 62 describes the procedure that a business must follow when it plans to raise its subscribed share capital through the issue of new shares. It makes sure that shareholders who are already in the company are given the chance to retain their ownership of the business.
This section is divided into three parts, and the section 62(1)(a) specifically talks about the Rights issue offering shares to shareholders already in the market.
What is a Rights Issue?
Rights Issues rights issue can be described as when a firm gives additional shares to its shareholders who are currently in the company, in proportion to their current shares. It’s a method of raising capital, while also giving current shareholders the first opportunity to purchase additional shares prior to being sold to other investors.
Key Provisions of Section 62(1)(a)
What is Section 62(1)(a) is requiring:
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Offer to Shareholders with Existing Shares The shares have to be made available to shareholders already holding shares in proportion in proportion to the current shares they hold.
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Notice of Offering A notice should be sent out to each shareholder, stating:
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Shares that are offered
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Acceptance timeframe for the offer (minimum of 15 days, and up to 30 days)
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The right to withdraw (transfer) this offer a different person
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Following the offer period If the shareholder fails to respond within the timeframe of the offer and is not able to do so, it’s deemed an acceptance of the offer and the company can sell the shares in a way that is not detrimental to shareholder or to the business.
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pricing is the amount at which shares are sold must be determined through the Board of Directors, often taking into account the face value or premium, based on the company’s valuation.
Purpose and Benefits of Section 62(1)(a)
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Protecting Shareholder Rights Protects against diluting ownership and control by granting the first priority to shareholders who are currently in control.
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Effective Fundraising is a cost-effective method to get capital raised without having to approach new investors or financial institutions.
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Transparent process The law demands transparency in transparency and fair timelines for communication to ensure ethical and legal procedures.
Practical Scenario
Let’s say that the company ABC would like to raise Rs10 crores to fund expansion. Instead of obtaining a loan, it decides to take an Rights Issue under Section 62(1)(a). If Shareholder X holds 10% in the firm, then they’ll receive an offer to purchase 10 percent of the shares.
If X accepts the offer they’ll keep their share of the company. If they don’t, the business could offer the shares to third people.
Compliance Requirements
To issue shares in accordance with Section 62(1)(a) the company must:
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Have a Board Meeting to discuss the Rights Issue
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Notice to all shareholders
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Complete the appropriate forms with the Registrar of Companies (ROC)
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Allot shares in 60 days after the date of receipt of money for application
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Keep proper documents in the Register of Members
Consult with the best CA Firm is recommended to ensure that every legal requirement is properly followed and ROC filings are correct.
Why This is Important for Startups and Growing Companies
For SMEs and startups the understanding of this provision is essential when planning financing rounds. It allows founders and promoters to remain in control without reducing their stakes in venture capitalists.
If you’re starting your own business and are looking into the possibility of registering your company knowing about Section 62(1)(a) will help you determine future strategies for funding without letting go of control over your business.
Expert Tip: When to Use Rights Issue?
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When you need money to expand, but also need to reward your loyal shareholders
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If avoiding high-interest debts is a top priority
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When confidence in shareholders is high, it’s more likely that they’ll invest more
Role of a CA Firm in Section 62(1)(a) Compliance
Implementing Rights Issues Rights Issue involves legal paperwork, ROC filing, share valuation, and compliance with regulatory requirements. The most reputable CA Firm can:
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Create the offer letter
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Verify that pricing conforms to the norms of valuation
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Handle ROC Compliance and file
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Recommendations on tax implications
This guarantees an error-free and smooth sharing process.
Conclusion
The section 62(1)(a) in the Companies Act, 2013 is an investor-friendly provision that protects ownership rights and allows businesses in raising capital. If you’re a business proprietor or planning to register for Companies Registration the provision is one that you must be familiar with.
With expert advice provided by experts from the Top CA firm Companies will not only be able to adhere to the law, but also utilize this tool to enhance investor relations and boost financial growth.
