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In what is seen as a start-ups friendly move, the Ministry of Corporate Affairs (MCA) has now allowed unlisted companies to utilise the funds raised by them through a rights issue within a shorter period of time. These companies need not wait for 15 days from the date of the offer of rights issue for the opening of the acceptance window for existing shareholders.
The company law provides that the acceptance window for rights issue should be open for a minimum 15 days from the date of the offer and close within 30 days. If the offer is not accepted by the shareholder in this period, then the offer would be deemed to have been declined.
Th MCA has now said that for a rights issue, the time period within which the offer would have to be made for acceptance should not be less than seven days from the date of offer.
However, for listed companies, the more stricter norm of SEBI – that the rights issue should remainopen for subscription for a minimum period of 15 days and for a maximum period of 30 days and no withdrawal of application should be permitted after the closing date – will continue to prevail.
Experts’ opinion
Harish Kumar, Partner, L&L Partners, a law firm, said that this reduction in timeline would fast track the fund raising process and companies would be able to raise and utilise the funds within a shorter period of time.
Aseem Chawla, Managing Partner, ASC Legal, said, “In situations of rights issue of equity shares, the period of acceptance of offer shall be a window of not less than seven days from the date of the said offer. It remains to be seen whether this new rule overides the proviso which prescribes that in case of private limited company with consent of ninety per cent of members a lesser period can be adhered. In other words,one has to see whether members could agree for a lesser period than seven days as now stipulated by Rule 12A that is now being introduced”
Praveen Raju, Partner, Spice Route Legal said, “It ensures that there is adequate time for shareholders to accept an offer under a rights issue.”
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