Rights Issue and Bonus Issue
Rights issue refers to the process of raising capital from its existing equity shareholders in the
proportion of their shareholding.
• See § 62 (1) of the Companies Act, 2013 r/w Chapter IV of ICDR Regulations
• A listed issuer making a rights issue shall announce a record date for the purpose of
determining the shareholders eligible to apply for specified securities in the proposed
rights issue.
• The issuer shall not withdraw rights issue after announcement of the record date. In case
he does, then he would not make an application for listing of any securities for 12 months
after the record date
• Issuer shall make a rights issue of equity shares after it has made reservation of equity
shares of the same class in favour of the holders of outstanding (compulsorily) convertible
debt instruments, if any, in proportion to the convertible part thereof.
• The abridged letter of offer, along with application form, shall be dispatched through
registered post or speed post to all the existing shareholders at least three days before
the date of opening of the issue
• The issuer shall issue an advertisement for rights issue at least three days before the date
of opening of the issue
Bonus Issue refers to Capitalization of Profits by conversion of accumulated profits or reserves
of a company into capital by means of a share issue to the existing shareholders. The rights are
normally offered in particular ratio to the number of equity securities held by a shareholder prior
to an issue.
• See § 62 (1) of the Companies Act, 2013 r/w Chapter IX of ICDR
• a listed issuer may issue bonus shares to its members if:
a) it is authorised by its articles of association for issue of bonus shares, capitalisation
of reserves, etc.:
b) it has not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;
c) it has sufficient reason to believe that it has not defaulted in respect of the payment
of statutory dues of the employees such as contribution to provident fund, gratuity
and bonus;
d) the partly paid shares, if any outstanding on the date of allotment, are made fully
paid up
• Issuer shall make a bonus issue of equity shares after it has made reservation of equity
shares of the same class in favour of the holders of outstanding (compulsorily) convertible
debt instruments, if any, in proportion to the convertible part thereof.
• The bonus issue shall be made out of free reserves built out of the genuine profits or
securities premium collected in cash only and reserves created by revaluation of fixed
assets shall not be capitalised for the purpose of issuing bonus shares
• The bonus share shall not be issued in lieu of dividend.