FSSAI Full Form and Everything You Need to Know About It
26 Feb, 2025
By Online Legal India
Published On 27 Jan 2025
Updated On 06 Feb 2025
Category Company Registration
According to Section 62 of the Companies Act 2013, a company that has a share capital and proposes to boost its subscribed capital, shall be offered further issue of share capital to the holders of equity shares in the company. You should be aware that shares and debentures play important roles in a company. The shareholders are the people who hold shares in a company and are its members. Even if you don’t know about it, you don’t need to worry as we will provide you with all the necessary information that will help expand your knowledge.
We know there are two types of companies: public and private. Public companies' main source is raising funds for shares and debentures. They ask the public to invest their funds and help invest it in their business. Private companies invest their own money in the company or business. This article gives an analysis of Section 62 of the Companies Act 2013.
Section 62 of Companies Act, 2013, states that when a company wants to expand its capital by providing new shares, first it needs to offer those shares to the existing percentage of equity stockholders to their existing shares. This process allows the existing shareholders to buy extra shares, maintaining their ownership in a company.
Section 2(84) of the act declares that a share represents a portion of the share capital of a country. It is the stake of a person known as the shareholder in a company. It is defined as the interests of a shareholder and helps in calculating the dividend value that needs to be delivered to each shareholder in a company.
If an organization needs extra capital and keeps the voting principle of existing shareholders properly balanced, the company will issue the Rights Shares. It gives the existing shareholders a protective right to purchase new shares at a lower price than the market price. It is a kind of invitation for the shareholders to buy the latest shares in amount to their existing shareholding.
The owners of a well-established company can choose to raise the capital by issuing shares. The stocks of the companies are divided into shares to make them profitable and sellable to the investors. The issuance of shares is done because they are proportionate to ownership and not debt. There won't be any legal obligation or assumption on the company to compensate the shareholders if something befalls the business.
In private companies, the partners, founders, and executives have a share in the company. The issuance of shares is usually done through the company stocks or other incentives to the employees.
Process of Rights Issue
According to Section 62 of Companies Act 2013, the process of Rights Issues is as follows:
Section 173(3) of the Companies Act 2013 declares that the issue of notice for a board meeting needs to be sent at least 7 days in advance and must state the purpose of the meeting.
When the board meeting is held, a bill is enacted issuing rights. It does not require the consent of the shareholders, due to which the board can act on the issue.
After passing the bill, the letter of offer is issued to all the shareholders and the same thing is sent to them through a speed post or a registered post. The window period to accept the letter of offer is 15 to 30 days for the shareholders.
The company needs to file the MGT-14 within the first 30 days of the Board Resolution. It is mandatory for any public limited organization or company. The board resolution certificate copy must be attached to the MGT-14 form.
The application money must be sent along with the accepted application from the shareholders. Both of these elements are necessary.
The notice must be issued 7 days in advance to summon the second board meeting. The bill for the allotment of shares and the required attendance must be present and passed. It must be done within 60 days of receiving the application when passing the bill for allotment of shares.
Within 30 days from the allotment of shares, the company must file for the form PAS-3 with the Registrar of Companies. The board resolution certificate copy and the list of allotters need to be attached to the form.
The company must update the depository immediately in case of shares in Demat form. The share certificates must be issued within 60 days from the day of allotment of shares if they are held in physical form.
According to section 43, there are two kinds of shares in a company: Equity share capital and Preference share capital.
Equity stocks also known as ordinary stocks, are issued by an organization or a company with the intent to raise capital and expand business. Investors get partial ownership of the company when purchasing equity shares. The number of shares purchased by an investor is equal to their portion of ownership in a company. Equity shares act as a stable source of financing for the companies as they are non-redeemable. When it comes to deciding on important matters of the company, Equity shareholders enjoy the right to vote.
Preferred shareholders receive their dividends before the equity shareholders. However, preference shareholders do not have the right to participate or vote in any decision regarding the company. It can be ranked between equity and debt in case of repayment and priority. Preference shares are issued by companies to raise capital. Preferred shareholders get the most priority over the common type of shareholders and in case of bankruptcy, they receive the company’s assets before them. It can also be converted into equity shares.
ESOP means Employee Stock Ownership Plan, which gives the benefactor company, the candidates, and the selling shareholder various benefits of the tax. The employees use it as a corporate finance approach to regulate the interests of their employees and the shareholders. It is mostly formed to aid succession planning in a company by indulging employees in the opportunity to purchase shares of the stock in a corporation. ESOP can also be offered as a retirement plan benefit.
ESOPs are a kind of trust fund and can be funded by businesses or companies putting shares that are newly issued in them. You can purchase existing companies by putting in cash or borrowing money through a third party to buy the company shares. They are used by different companies including large public corporations.
When a business is expanding, the company will need to invest a lot of capital. The private companies will not ask the public for investment, but the public companies get funding from the public to issue shares and use their money to expand the business. The reason for collecting funds from the public is the companies work for the welfare and benefit of the public. According to Section 62 of the Companies Act 2013, the capital and funds can be raised after issuing rights shares to the existing shareholders.
This article gave a brief idea about the Section 62 of the Companies Act 2013. For more information on legal matters, visit our website Online Legal India.
Q1: What is Section 62 of the Companies Act, 2013?
A: Section 62 of Companies Act 2013 states that when a company has limited shares, it can boost it by issuing further shares. It is granted in three ways, by employees under the ESOP (Employee Stock Option Plan) scheme, by shareholders, and by preferential allotment.
Q2: Who has the right to receive shares under Section 62?
A: When new shares are issued by a company, the existing shareholders get the opportunity to issue those new shares in proportion to their current shares before offering them to others.
Q3: What is the time limit for accepting a rights issue under Section 62?
A: The time limit to accept rights issues is within 15 to 30 days from the date of notice. The shareholders need to accept the offer in this timeframe. The company can get rid of the shares if not accepted by the shareholders.
Q4: What is an Employee Stock Option Plan (ESOP) under Section 62?
A: The ESOP scheme refers to the issuance of shares to the employees offered by the company and giving them ownership of the company.
Q5: Can a private company issue shares to outsiders under Section 62?
A: Yes, it can issue shares to others on a preferential allotment under Section 62 of Companies Act, 2013, but it requires compliance with prescribed rules, approval via a special resolution, and valuation by a registered valuer.
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