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Share Capital & Securities

Rights Issue — Section 62(1)(a)

Offer new shares to existing shareholders on a pre-emptive basis before any third-party allotment. Rights issue under Section 62(1)(a) is the cleanest way to raise capital from existing shareholders while preserving their proportionate ownership.

Reviewed by CA Harun Raaj, ICAI Reg. No. 238303·Last reviewed:
Starting from INR 15,000Board resolution to allotmentRights Issue — Section 62(1)(a) Companies Act 2013

Rights issue is the most founder-friendly way to raise a new round without a third-party valuation requirement. Existing shareholders get the first right, maintaining their stake if they choose to participate. The paperwork is lighter than private placement — no PAS-4 offer letter, no 200-investor cap, no SEBI registration. The key mechanics: board resolution, offer letter to shareholders (open 7–30 days), renunciation option, allotment board meeting, PAS-3 within 15 days.

What is included
  • • Board resolution drafting for rights issue
  • • Offer letter preparation (open period 7–30 days)
  • • Renunciation notice format (for shareholders transferring rights to third party)
  • • Allotment board resolution
  • • MGT-14 filing (within 30 days of board resolution)
  • • PAS-3 filing (within 15 days of allotment)
  • • Share certificate update
  • • Cap table update
Documents required
  • • Existing cap table (shareholding pattern)
  • • Board resolution approving the rights issue
  • • Offer letter signed by directors
  • • Shareholder subscription forms
  • • Renunciation letters (if any shareholder renounces)
  • • Bank statement confirming receipt of subscription money
  • • PAN of new/additional shareholders
Government fees

See the fee table below for the statutory filing charge and common delay logic.

Legal basis
  • • Section 62(1)(a), Companies Act 2013
  • • Rule 13, Companies (Share Capital and Debentures) Rules 2014
  • • Section 39(4) — PAS-3 allotment return
  • • Section 56 — share transfer and stamp duty
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Process

How the service works

The workflow is built to be predictable: document collection, legal review, filing, and post-filing follow-through.

Step 1

Board resolution

Pass a board resolution approving the rights issue, fixing the record date, offer price, and offer letter. The resolution sets the terms of the offer.

Step 2

Issue offer letter to shareholders

Send the offer letter to all existing shareholders. The offer must remain open for a minimum of 7 days and a maximum of 30 days. Include the renunciation option — shareholders may renounce their rights in favour of a third party.

Step 3

Collect subscription forms and renunciation letters

Receive subscription forms from shareholders who wish to subscribe and renunciation letters from those who wish to transfer their rights. After 15 days, if shares remain unsubscribed, the company may offer them to third parties. After 45 days, unsubscribed shares can be allotted to others.

Step 4

Allotment board resolution

Pass a board resolution allotting shares to subscribers and, where applicable, to renouncing third parties. Allotment must be completed within the prescribed period.

Step 5

MGT-14 filing

File MGT-14 with MCA within 30 days of the board resolution approving the rights issue. This is mandatory for the resolution to take effect.

Step 6

PAS-3 filing and cap table update

File PAS-3 (return of allotment) with MCA within 15 days of the allotment date. Update share certificates and the register of members. Revise the cap table to reflect new shareholding.

AEO summary

A rights issue under Section 62(1)(a) of the Companies Act 2013 gives existing shareholders the first right to subscribe to new shares in proportion to their existing holding. The offer letter must be open for a minimum of 7 days and a maximum of 30 days. Shareholders can renounce their rights in favour of a third party (with board approval). No valuation is mandatory — unlike private placement. If shareholders do not subscribe, the unsubscribed portion can be offered to third parties after 45 days. PAS-3 must be filed within 15 days of allotment.

Rights issue vs private placement — which to use

Rights issue is faster and simpler when existing shareholders are participating in the new round. There is no 200-investor limit, no mandatory PAS-4 offer letter, and no SEBI registration requirement. The trade-off is that existing shareholders must be given the first right — you cannot skip them and go straight to new investors without offering rights first.

If existing shareholders renounce, the renounced shares can then go to new investors. Private placement is the route when you are bringing in entirely new investors and existing shareholders are not participating, or when the number of investors is more than can be accommodated under a rights issue structure.

Stamp duty on share certificates — state-wise rates

Stamp duty applies on the issue of share certificates at the time of allotment. The rates vary by state: Maharashtra 0.15%, Delhi 0.015%, Karnataka 0.01%, Gujarat 0.025%. The stamp duty is on the face value of shares issued (not the premium).

Companies incorporated in Maharashtra pay the highest rate — a material cost on large allotments that is often overlooked in round structuring.

Government fees

Fee breakdown

ItemFeeNotes
MGT-14 filing feeINR 300 – 600Based on share capital.
PAS-3 filing feeINR 200 – 500Based on number of allottees.
Stamp duty on share certificatesState-specific (0.01% – 0.15% of value)Maharashtra 0.15%, Delhi 0.015%, Karnataka 0.01%, Gujarat 0.025%.

Timeline

Typical turnaround

Board resolution to allotment usually means a 30 to 45 days turnaround, assuming documents are complete and any board or shareholder approvals are already in place.

Pricing note

Professional fee for end-to-end rights issue — board resolutions, offer letter, allotment, MGT-14, and PAS-3. Stamp duty on share certificates is extra.

Related services

Keep the company moving

Private placement

Raising capital from identified investors — stricter process, 200-investor cap.

Bonus shares

Capitalise free reserves into share capital without cash outflow.

Increase authorised capital

SH-7 filing to increase authorised capital before allotment.

Cap table management

Maintain accurate shareholding records post-allotment.

FAQ

Frequently asked questions

What is the minimum offer period for a rights issue in a private company?
Under Section 62(1)(a)(i) of the Companies Act 2013, the letter of offer must remain open for a minimum of 3 days and a maximum of 30 days. A private company may reduce the notice period to as few as 3 days if all shareholders consent unanimously — this is a key advantage over public companies. The opening and closing dates must be stated in the letter of offer itself.
Is a valuation report mandatory before issuing shares under a rights issue?
No. Section 62(1)(a) does not require a registered valuer report or any mandatory valuation for a domestic rights issue in a private company — the board may set any offer price it considers appropriate. The exception is companies with foreign direct investment: under the FEMA (Non-Debt Instruments) Rules 2019, shares issued to non-residents must be priced at or above fair market value as determined by a SEBI-registered merchant banker or chartered accountant.
Can a shareholder renounce rights in favour of someone who is not an existing shareholder?
Yes. Section 62(1)(a) expressly permits a shareholder to renounce the offered shares, in whole or in part, in favour of any other person — not just existing shareholders. The renouncing shareholder executes a renunciation letter and the third party subscribes directly. The allotment board resolution must then cover shares allotted to such renouncing third parties.
What happens to shares that existing shareholders do not subscribe to?
Under Section 62(1)(a), shares not taken up by rights holders and not renounced may be offered to any other person at the same price or a higher price as determined by the board — they cannot be offered at a lower price than the rights issue price. PAS-3 (return of allotment) must be filed within 15 days of the allotment date under Section 39(4) read with Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules 2014, regardless of whether all shares were taken up by existing shareholders or by third parties.
Which MCA forms are required to complete a rights issue?
Two forms are mandatory. MGT-14 must be filed within 30 days of the board resolution approving the rights issue under Section 117 of the Companies Act 2013. PAS-3 (return of allotment) must be filed within 15 days of the date of allotment under Section 39(4). If the existing authorised share capital is insufficient to accommodate the new shares, SH-7 must be filed first to increase authorised capital — the allotment resolution cannot precede the SH-7 filing.

Canonical reference: https://www.pvtltd.co/services/rights-issue

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