Section 62 of the Companies Act, 2013 provides that when at any time company proposes to increase its subscribed share capital by the issue of further shares then such shares shall be offered in 3 ways -

• Right issue of share capital,
• Employee stock option scheme,
• Preferential issue of shares.

Right Issue of Share Capital:

Shares that are offered to the existing shareholders are called right shares. The company is under a legal obligation to offer the right shares due to section 62 of the Act. However, the following rules shall be applicable:

• An offer of right shares must be made to the equity shareholders of the company in proportion to the paid-up share capital on those shares by sending a letter of offer.
• The offer must be made by a notice specifying the number of shares offered and giving at least 15 days but not exceeding 30 days from the date of the offer within which offer is to be accepted and if not accepted then it shall be deemed to have been declined.
• The existing shareholders have the right to renounce the offer in favor of any other person unless articles provide otherwise. The notice must contain a statement for this.
• After the time specified in the notice or on receipt of a refusal to accept the shares, the board of directors may dispose of them in such a manner as they think beneficial to the company.

Employee Stock Option Scheme (ESOS):

It is an employee benefits scheme that makes the employees of a company the owners of stock or shares in that company. Under this scheme, a right is given to employees to buy the shares at a pre-determined price on a pre-determined date based on their performance. A company is under a legal obligation to issue shares under this scheme by section 62(1)(b) of the Act. Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014 specifies some conditions to be fulfilled by companies other than a listed company as a listed company is to comply with the Securities Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. Conditions are:

• The issue of ESOS has to be approved by the shareholders by passing a special resolution.
• The company shall have the freedom to determine the exercise price in conformity with the applicable accounting standards.
• There shall be a minimum period of one year between a grant of option and vesting of the option. Grant of option means giving an option to employees to subscribe and vesting of option means a process by which the employees are given the right to apply.
• The option granted to employees shall not be transferrable to any other person.
• The company shall make the prescribed disclosures in the explanatory statement annexed to the notice for passing the resolution.

Preferential Issue:

It means an issue of shares to selected persons or selected group of persons under section 62(1)(c) of the Act and not being a public issue, right issue, issue of employee stock of options, issue of sweat equity shares, issue of global depository receipt outside India. Certain provisions are:

• Shares shall be issued only by passing a special resolution by the shareholders.
• The issue may be to existing shareholders, employees, or any other person.
• May be issued either for cash or consideration other than cash.
• The price of shares is to be determined by a registered valuer’s valuation report.
• Shares may be issued on a preferential basis subject to the conditions prescribed under Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.