Rights shares are issued u/s 81 of the Companies Act, 1956 when the company decides to increase its subscribed capital. The scheme has the following characteristics:
(a) Such share shall be offered to its equity shareholders in proportion to their holding.
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(b) The offer shall be made by a notice of not less than 15 days within which the offer is to be accepted. Otherwise it is deemed as declined.
ADVERTISEMENTS:
(c) The equity shareholders to whom the offer is made shall be given a right to renounce the offer in full or in part in favour of any other person and the notice shall contain a statement to this effect.
(d) After the expiry of the notice period or on receipt of intimation declining the offer, whichever is earlier, the Board of Directors may dispose of such shares in the manner most beneficial to the company.
Cost of Acquisition:
Rights issues are offered by the company generally at concessional price to the existing shareholders. The cost of such shares is the price at which the company has offered such shares. The rule of Reading over is not applicable in case of rights as applicable in case of bonus shares.