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Can a private company limited by shares carry out a rights issue?
Published on: 17 February 2017
A rights issue is an offer of shares to existing shareholders of a company, which gives them the right to subscribe for additional shares in proportion to their existing shareholding in the shares of the company, eg, a right for each shareholder to subscribe for one new share for every five shares that they hold. The shares are usually offered to the existing shareholders by means of renounceable letters or other negotiable instruments.
If a company wants to raise new capital through an issue of its ordinary shares for cash, it is prima facie obliged by section 561 of the Companies Act 2006 (CA 2006) to do so by means of a rights issue in favour of its existing shareholders. CA 2006, s 561 sets out statutory pre-emption rights and states that a company must not allot equity securities to a person on any terms unless:
- •
it has made an offer to each holder of ordinary shares to allot to such holder, on the same or more favourable terms, a proportion
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Private company definition
What does Private company mean?
A private company is not a public company within the meaning of the Companies Act 2006 and is prohibited from making any offer of securities of the company to the public.
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