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Security Analysis and Portfolio Management




                    Notes              The investor's bank account would get debited only after the shares/debentures allotted.
                                       In respect of unsuccessful applicants, the funds continue to remain in their account and
                                       earn interest if the account is a savings or a term deposit. The excess application money of
                                       partly successful applicants also, will remain in their accounts. There will be lien on the
                                       funds for a maximum of four months period. The stockinvest is intended to be utilised
                                       only by the account holders and it should not be handed over to any third party for use. In
                                       case the  cancelled/partly utilised  stockinvest is not received by an investor from the
                                       Registrar, lien will be lifted by the issuing branch upon expiry of four months from the
                                       date of issue against an indemnity bond from the investor.
                                   4.  Rights Issues: If an existing company intends to raise additional funds, it can do so by
                                       borrowing or  by issuing  new shares. One of the most  common methods  for a  public
                                       company to use is  to offer  existing shareholders  the opportunity to subscribe further
                                       shares. This mode of raising finance is called 'Rights Issues'. The existing shareholders
                                       have right to entitlement of further shares in proportion to their existing shareholding.
                                       The rights of entitlement of a shareholder, who does not want to buy the right shares, can
                                       be sold to someone else.  The price of rights  shares will be generally  fixed above  the
                                       nominal value, but below the market price of the shares. The issue of quoted shares at
                                       below the nominal value  is not  allowed, and  it would be rare  for this  to happen for
                                       unquoted shares. Section 81 of the Companies Act provides for the further issue of shares
                                       to be first offered to the existing members of the company, such shares are known as 'right
                                       shares' and the right of the members to be so offered is called the 'right of pre-emption.'

                                       Section 81 of the Companies Act, 1956 deals with the provisions relating to rights issues.
                                       (a)  Any company
                                            (i)  Which has completed two years after its incorporation or
                                            (ii)  Which has  completed one  year from the first  allotment of shares after its
                                                 incorporation
                                       (b)  Whichever is earlier, if it proposes to increase its subscribed capital by allotment of
                                            further shares, then the subsequent provisions shall apply.
                                       (c)  Those further shares shall be first be offered to the existing shareholders in proportion
                                            to the shares held by them in the paid up capital, on the date of such offer.

                                       (d)  At least 15 days notice shall be given from the date of offer. The notice shall specify
                                            the number of shares offered and the limiting time of the offer.
                                       (e)  The notice shall mention that if the offer is not accepted within the time of offer, will
                                            be deemed to have been declined.
                                       (f)  Unless the articles of the company otherwise mention, such offer has the right of
                                            renunciation.
                                       (g)  The notice of offer shall contain a statement a renunciation.
                                       (h)  If it is declined to accept the offer, the board of directors may dispose of those shares
                                            in such manner, as they deem most beneficial to the company.
                                       Reasons for a Rights Issue
                                       The main reasons of making a rights issue by a company are as follows:
                                       (a)  In times of inflation, the replacement costs of assets will be high; unless the company
                                            can retain cash from substantial profits, the only alternative is to raise cash from a
                                            fresh issue of shares.





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