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Unit 3: Reissue of Forfeited Shares and Bonus Issue

Fill in the Blanks: Notes
8. In solving the examination problem, students generally face a difficulty in calculating the
amount of arrears on allotment and forfeited amount, in the case on shares are allotted the
basis of ................................
9. If a company has a ................................ the market, there is a possibility that shares applied
for would be more than what the company proposes to issue.

3.3 Right Issue (Under Section 81)

If a company proposes to increase its subscribed capital by allotment of further shares at any
time after the expiry of two years from the formation of the company, or at any time after the
expiry of one year from the allotment of shares whichever is earlier, then:
(a) Such further shares must be offered to the persons, who at the time of offer, are holders of
the equity shares of the company, in preparation, as nearly as circumstances admit, to the
capital paid up on those shares at that time.

(b) The above offer is made by giving a notice mentioning the number of shares. This notice
should also fix a time which should not be less than fifteen days from the date of offer
within which the offer must be accepted.

(c) On the receipt of the notice the existing shareholder may exercise his right to take new
shares himself or may transfer his right in favour of any other person.
(d) After the expiry of the time specified in the notice or on the receipt of earlier intimation
from the shareholder to whom the notice is served, that he declines to accept the shares,
the board of directors may dispose off these shares in such a manner as the board thinks
most beneficial to the company.
On the basis of above conditions if the further share capital is issued to existing shareholders
who are entitled to take these shares, such shares are known as Right Share.
“The objective of Section 81 obviously is that there should be an equitable distribution of shares
and the holding of shares by each shareholder should not be affected by the issue of new share.”
This further issue of shares can be offered to any person other than existing shareholder in any
manner whatsoever:
(i) If a special resolution has been passed by the company to allot the new shares in a different
manner than that provided in the Section 81 in the general meeting.

(ii) If an ordinary resolution has been passed by the company to that effect and the Central
government is satisfied on an application made by the board of directors that the proposed
offer of shares to the other persons is most beneficial to the company.

The provisions of Section 81 do not apply in the following cases:
1. Where the object of the issue is to allot qualification shares to one or more persons to
enable them to become the directors of the company.

2. Where the issuing company is a private limited company.
3. Where the increase in subscribed capital is due to the conversion of debentures or loans
into shares in the company.

4. Where, by the order of government, debentures issued to government or loan obtained
from government by the company, are converted into shares.

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