Rights issue: meaning, offer period and process
A rights issue offers new shares to existing shareholders in proportion to their holdings under section 62(1)(a). The offer stays open 15 to 30 days.
Short answer
A rights issue is an offer of new shares by a company to its existing equity shareholders in proportion to their current holdings, under section 62(1)(a) of the Companies Act, 2013. Shareholders can accept, decline or, unless the articles say otherwise, renounce the offer in favour of someone else.
- Governed by
- Section 62(1)(a), Companies Act 2013
- Offer period
- 15 to 30 days (shorter for private companies with consent)
- Approval
- Board resolution
- Return of allotment
- Form PAS-3 within 15 days
How a rights issue works
The board approves the issue, the price and the ratio, for example one new share for every four held. A letter of offer is sent to all equity shareholders, giving them at least 15 days and not more than 30 days to respond. Under the 2015 exemption notification, a private company can use a shorter period if at least 90% of members consent in writing or electronically. After the offer closes, the board allots shares to those who accepted, and may allot unsubscribed shares in a manner that is not disadvantageous to shareholders and the company.
Rights issue versus private placement
A rights issue goes only to existing shareholders, pro rata, and does not need a shareholders' special resolution or a valuation report under the Companies Act. A private placement or preferential allotment brings in new investors and needs a special resolution, a PAS-4 offer letter and usually a registered valuer's report. When existing shareholders include non-residents, the rights price must comply with the FEMA pricing rules, and allotments to them must be reported to the RBI.
Why it matters for startups
Founder-held companies often use rights issues to bring in more capital from existing shareholders, such as founders funding the company before a priced round. Check authorised capital headroom, follow the notice period, record renunciations properly and file PAS-3 on time. Investors with pre-emption rights under the shareholders' agreement will expect a rights-style offer before any new issue.
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Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Do rights shares have to be issued at a discount?
No. The board decides the price. Rights issues are often priced at or below fair value, but there is no rule requiring a discount.
What happens if a shareholder does not take up rights?
The unsubscribed shares can be allotted by the board as it thinks fit, in a manner not disadvantageous to shareholders and the company.
Can rights be renounced?
Yes, unless the articles prohibit it. A shareholder can renounce rights in favour of another person.