Right share are the share that are issued by a company for its existing shareholders. The existing shareholders have their right to subscribe to these shares unless some special rights reserve them for some other persons.
Right shares can only be issued after two years of the formation of the country or after one year of the first issue of the shares whichever is earlier, as per the Companies Act. The right shares are usually issued in the ratio of the equity shares held by the existing shareholders. The Right shares are normally issued with 15 days’ notice and cannot be opened more than 60 days as per the SEBI guidelines.
The benefits of right shares are listed below:
- Greater control on the existing shareholders.
- Increase in the value of shares and hence no loss of existing shareholders.
- Increases company goodwill and brand perception.
- There is no cost involved with the issuance of the shares.
- Company has easy access to any capital required at any point of time.
- The distribution technique involved with right shares is more scientific.