1. Introduction: It is very common that in the initial stage the development of the company is very slow and more instable. But with the increase of the popularity of the product of the company, there is increase in the sale of the products and the economic prosperity of the company increases. Under these circumstances, the company plans out various projects. In order to carry out these projects, there is need of more capital. For this, the company gives first preference to its old shareholders to purchase the new shares issued by it. These shares are called the right shares. There are certain provisions in the companies Act regarding this.
2. Meaning of Right Shares : In accordance with the company Act, the company which is in existence and issuing new equity shares in the market, has to offer first to its existing equity shareholders known as Right share.
3. Provisions of Companies Act for Right Shares : There are some provisions in the Companies Act regarding the issue of right shares. They are as under:
(1) Time Limit: From the date of incorporation of the company till two years or one year from the share distribution date whichever date comes first, the company cannot increase its paid up share capital before that.
(2) Notice to shareholder: Every shareholder who is subject to the rigth of getting such share has to be given a notice of minimum 15 days and not more than 30 days period with acknowledgement regarding their right of the right share.
(3) Rejection of Right : The shareholder who is authorized to get right share may eveneject the offer made to him by the company regarding the acceptance of right share, by transferring it to some other persons name.
(4) Discards of Right Shares : Any shareholder who is. entitled to Right Share, if gives a written application to the company for rejection of offei or does not declare his interest regarding such right shares within given time limit, the directors of thëcompany can discard ihose share in the interest of company.
(5) Share Application Money : The shareholder who is authorised to get right shares has to pay the necessary amount along with share application form.