Rights Issues : Important Acts

The issue related to the sharing market has arrived when the requirement of capital exploration has increased. Instead of issuing shares to the public, which would result in asymmetry in existing shareholders’ voting rights, the company has addressed issuing extra shares in the volume of recent shareholding to its existing shareholders. Considering this fact, these Acts have been established that solve the issues of additional capitals, without influencing the voting rights of the existing shareholders. In addition, these rights are granted in a certain proportion to the number of securities based on the registered data. Therefore, this paper has been designed for a better understanding of “Right issues” and their related facts. 

Important acts that bring transformation in India’s business economy

In order to maintain an effective business economy, various rules and Acts have been promoted, resulting in financial benefits. Depending on the share market and analysing the economic condition and issues, various Acts that were established for the economic purposes include, “The Fiscal responsibility and Budget management Act”, the “Goods and Service Tax legislation, 2017”, “Company Act 2013” and “SEBI Regulations 2009 Act” and so on. However, to perform the “Rights issues”, the main two acts that have been performed are “Company Act 2013” and “SEBI Regulations 2009 Act” and “Company Act 2013”. These two acts provide security to the existing shareholders after applying for “data record” issues and after purchasing new shares. On the other hand, the “Company Act 2013” modified the previous “Indian company Act, 1956” and offers all government and private organisations the benefits of absolute foundations and other comprehensive benefits resulting in effective utilisation of “Liberalisation-Privatisation- Globalisation (LPG) policy”.

Practices for “Rights issues”

Several practices have been performed regarding “issue of right shares”, which include, recording of data, circumscription in rights issues, development of “Letter of Offer” and “Abridged Letter of Offer”, proper pricing, and so on. In the initial step, to get the specific security, it is important to declare the “record data’ by issuing shareholders, and after the declaration, issues will not be subject to cancellation. The issuers will be restricted for 1 year if the “rights issues” have been withdrawn after the announcement. 

Furthermore, the issuer will not get the “equity share right”, unless it exchanges such arrears to convertible owners of the same class of equity shares. In addition, a “Letter of Offer” will be sent to the issuing shareholders by the involvement of the “lead merchant bankers” or issuers. However, during the dispatch of “Abridged Letter of Offer” and “application form”, an authorised post will be used, by which all the shareholders will get these letters within three days. On the other hand, the issue price has been determined after finding out of “record data” with the minimum subscription period of “15 days and can extend to 30 days”. 

Importance of “Rights issues” along with “Liberalisation”, “Privatisation” and “Globalisation” in economy

If the shareholders of the existing business market want to buy additional shares, these “Rights issues” give them rights and securities related to the new shares with reduced cost. However, these “Rights issues” are not applicable to all the public, rather only applicable to the shareholders. It has been observed that under this “Company Act 2013” and “SEBI Regulations 2009 Act” the existing shareholders get the facilities to subscribe to the “right issues” partially or completely according to their choice. In addition, failure to exercise the basic rights to buy extra shares may result in loss of rights and the eligible shareholders can get the allowance of change of possession of “rights entitlements” to others in accordance with their preference. 

The term “liberalisation” denotes such practices that help to limit the restriction of government rule and regulation. On one hand “Privatisation” means the transfer of business ownership from the government to private owners. On another hand, “Globalisation” of the business industry has been concerned with connecting the global population with the global business market by the means of political, social, and economic factors. In, the Indian business economy, these three interrelated factors, is aimed at achieving a high rate of economic growth by demolishing the unemployment issues with expanding the trade boundaries across the world. Moreover, extensive rigid governmental rules also have been loosening to get work and financial flexibility. Application of this “LPG policy”results in a high rate of GDP in the Indian business economy of “4400 crores” in the year 2018-2019.

Conclusion

In the concluding portion, it can be concluded that in order to perform “Right issues” two Acts have been established named as “Company Act 2013” and “SEBI Regulations 2009 Act”. These two Acts secure the shareholders’ rights after purchasing new shares. Moreover, “LPG policy” has been offered economic benefits by means of extended business boundaries, resolving the unemployment issues with economic growth rate.