How does a rights issue work under section 62?
How a company issues further shares under section 62 of the Companies Act, 2013, the rights-issue offer to existing shareholders, the 15 to 30 day offer window, the ESOP and preferential-allotment routes, and how the price is set.
In this guide
Section 62 of the Companies Act, 2013 governs how a company issues further shares. Where it increases subscribed capital, it must first offer the new shares to existing equity shareholders in proportion to their holding, by a notice giving at least 15 days and not more than 30 days to accept. Shares can also be issued to employees under an approved ESOP by special resolution, or to any persons by preferential allotment under section 62(1)(c) by special resolution at a price set by a registered valuer.
What does section 62 cover?
Section 62 of the Companies Act, 2013 governs any further issue of share capital once a company is running. Section 62 sets out the routes a company uses to increase its subscribed capital: a rights issue to existing shareholders, an issue to employees under an ESOP, and a preferential allotment to other persons.
The default is that existing shareholders come first. A company cannot simply issue new shares to a chosen party; it must either offer them proportionately to current holders or use one of the special-resolution routes the section allows.
How does a rights issue work?
In a rights issue the company offers the new shares to existing equity shareholders in proportion to the paid-up shares they already hold, under section 62(1)(a). The offer is made by a notice that states the number of shares offered and the time within which to accept.
This proportionate offer protects each shareholder's stake from dilution. A holder can take up the full entitlement, take part of it, or let it lapse, and only after the offer period can unsubscribed shares be placed elsewhere.
What is the offer period?
The offer must stay open for at least 15 days and not more than 30 days from the date of the offer, under section 62(1)(a)(i). A shorter or longer window does not meet the section, so the 15-to-30-day band is the fixed frame for a rights offer.
| Element | Rule |
|---|---|
| Who the offer goes to | Existing equity shareholders, in proportion |
| Minimum offer period | 15 days from the offer |
| Maximum offer period | 30 days from the offer |
| If not accepted in time | Treated as declined; board may dispose of the shares |
Where the offer is declined or lapses, section 62(1)(a)(iii) lets the board dispose of the shares in a manner not disadvantageous to the shareholders and the company.
Can a shareholder renounce the rights?
Yes, unless the articles provide otherwise. Section 62(1)(a)(ii) gives the shareholder a right to renounce the shares offered in favour of any other person. The offer notice must state that the shareholder has this right.
So a shareholder who does not want to put in more money can pass the entitlement to someone who does. The renouncee then subscribes for the shares in place of the original holder.
What are the ESOP and preferential routes?
Beyond the rights issue, section 62(1)(b) allows an issue to employees under an approved employee stock option scheme, by special resolution and the prescribed conditions. This lets a company allot to its employees rather than to all shareholders proportionately.
Section 62(1)(c) allows a preferential allotment to any persons, existing shareholders or not, by special resolution, at a price fixed by a registered valuer's report. This is the route to bring in a new investor, and it is read with the private-placement procedure in section 42 where that applies.
How do I confirm the right route?
- Decide whether the issue goes to existing shareholders, employees, or outside persons under section 62.
- For a rights issue, set the offer window between 15 and 30 days.
- For an ESOP, pass the special resolution and follow the scheme conditions.
- For a preferential allotment, pass a special resolution and get a registered valuer's price.
- Check whether section 42 private-placement procedure also applies.
Where do further issues go wrong?
- Issuing new shares to an outsider without first offering to existing holders.
- Setting a rights-offer window outside the 15-to-30-day band.
- Omitting the renunciation right from the offer notice.
- Doing a preferential allotment without a registered valuer's price.
- Skipping the special resolution the ESOP or preferential route needs.
Where are section 62 changes published?
Changes to the further-issue rules come as MCA amendments to the Companies Act and to the Companies (Share Capital and Debentures) Rules. For the private-placement procedure a preferential allotment often runs through, read our related company-law guides, and for the capital base a rights issue expands, our authorised vs paid-up capital guide. Complied AI keeps MCA updates in one feed so you can open the notification behind a rule change and read section 62 next to it.
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Common questions
What is a rights issue under section 62?
A rights issue is an offer of further shares to existing equity shareholders in proportion to their paid-up shares, under section 62(1)(a). Where a company proposes to increase its subscribed capital by issuing further shares, it must first offer them to current shareholders before offering to anyone else, preserving their proportionate holding.
How long must a rights issue offer stay open?
The offer notice must give the shareholder at least 15 days and not more than 30 days from the date of the offer to accept, under section 62(1)(a)(i). If the offer is not accepted within that period, it is treated as declined, and the board can then dispose of the unaccepted shares in a manner not disadvantageous to the shareholders or the company.
Can a shareholder renounce rights shares to someone else?
Yes, unless the articles say otherwise. Section 62(1)(a)(ii) provides that the offer includes a right to renounce the shares offered in favour of any other person. So a shareholder who does not want to subscribe can transfer the entitlement, and the renouncee takes up the shares.
How are shares issued to employees under section 62?
Under section 62(1)(b), a company can issue further shares to employees under a scheme of employee stock option, subject to a special resolution and the prescribed conditions. This is the ESOP route, separate from the rights issue, and it lets the company allot to employees rather than to all shareholders proportionately.
What is a preferential allotment under section 62(1)(c)?
Section 62(1)(c) lets a company issue further shares to any persons, whether or not existing shareholders, if authorised by a special resolution, either for cash or for a consideration other than cash, at a price determined by the valuation report of a registered valuer. It is the route used to bring in a new investor without offering to all shareholders first.
Does section 62 apply to a private company?
Yes. Section 62 applies to every company that increases its subscribed capital by a further issue of shares, including a private company. The rights-issue offer, the ESOP route, and the preferential-allotment route are all available, subject to the resolution and procedure each requires.
Who sets the price in a preferential allotment?
A registered valuer. Section 62(1)(c) requires the price of a preferential allotment to be determined by the valuation report of a registered valuer, subject to the prescribed conditions. So the price is not set by the board's discretion alone; it rests on an independent valuation.
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This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 16 September 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
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