Preferential Allotment and Private Placement
Preferential allotment & Private placement.
provisions of Section 62(1) (c) preferential allotment of shares, Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 and Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 concerning to the Preferential allotment of Shares of the Company also makes an endeavor to light up on provisions and process of allotment of shares through Preferential allotment of shares, difference between Private Placement of Shares & Preferential allotment of shares etc.
Introduction:
There are many ways to issue shares like: Right Issue of Shares, Private Placement of Shares, ESOP, Sweat equity shares, preferential allotment of shares etc.
Ahead of starting the study on provisions of preferential allotment of shares (hereafter referred as “PAS”) we may understand meaning of PAS. The expression ‘Preferential Offer’ means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities.
Through preferential allotment of shares company can issue following type of shares / securities:
√ Issuance of Equity shares.
√ Issuance of Fully or partly convertible debentures
√ Issuance of any other securities convertible into equity shares
CONDITIONS FOR PREFERENTIAL ALLOTMENT OF SHARES
- Offer to be previously approved by Special Resolution:
- Authorization in Article of Association:
- Maximum No. of persons to whom offer can be made:
- Finalization of name of Allottees:
As per rule 13(2)(d) Company have to mention the the names of the proposed Allottees and the percentage of post preferential offer capital that may be held by them in the explanatory statement to be issued for the General Meeting.
- Offer Letter (PAS -4): not required if preferential offer made by a company to one or more existing members
- Time period for completion of the Allotment:
The allotment of securities on a preferential basis shall be completed within a period of twelve months fro SR but if not completed dn another special resolution OR
The company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money. Whichever is earlier.
- Valuation report:
The price of shares or other securities to be issued on preferential basis shall not be less than the price determined on the basis of valuation report of a registered valuer.
- Application Form:
The offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons at extra ordinary general meeting.
- No further offer till completion of earlier offer:The requirements or provision of sub-section (3) of Section-42 shall apply in respect of offer or invitation of each kind of Shares / security and no offer or invitation of another kind of security shall be made unless allotments with respect to offer or invitation made earlier in respect of any other kind of security in completed.
- Value of Offer and invitation:The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities. The shareholder can accept less value of shares.
- Separate Bank Account:
Except in case of issue of shares for cash or consideration other than cash the following provisions required to follow:
- The payment for subscription should be through the bank account of the person subscribing to the Shares / security
- The Company should keep a record of the bank account from where such payments have been received.
- The money so received shall be kept in a separate bank account of the company and utilized only for allotment (or repayment).
- Other Conditions:
- The offer letter shall be sent to persons, either in writing or in electronic mode
- The Company shall not release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.
- There is no condition in the Act or rule regarding minimum gap between two offers. A company can come with new offer after completion of earlier offer.
- There is no condition in the Act or rule regarding maximum Number of Preferential allotment of shares in a financial year
STEP WISE PROCEDURE OF PRIVATE PLACEMENT
STEP-1
Call Meeting of Board Director:
STEP-II Hold the Board Meeting:
Step III : Hold Extra Ordinary general Meeting:
STEP-1V : Circulate Letter of Offer in form PAS-4:
- Offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made.
- Offer Letter sent either in writing or electronic mode.
- Issue offer letter within 30 days of General Meeting/recording the name of such person.
STEP-V :File Form with Registrar: : File MGT-14 with Registrar within 30 days of passing of Special Resolution.
STEP-VI :Open Separate Bank Account:
STEP-VII : File two e-form GNL-2 with Registrar within 30 days of circulation of offer letter.
Attachments: PAS-4 (Offer Letter) and PAS-5 (Complete record of Private Placement).
STEP-VIII
Call Board Meeting after receiving of allotment of money.
STEP-IX : Hold the Board Meeting:
- Present List of Allottees before the Meeting.
- Pass Board Resolution for allotment of shares (within 60 days of receiving of money).
- Pass Resolution for issue of Share Certificate in same Meeting.
- Authorize to two directors and a authorize person to sign share certificate.
STEP-X “ File PAS-3 with Registrar of Company.
Attachments: List of Allottees & Board Resolution for allotment of Shares.
STEP-XI : Issue Share Certificate: in Form- SH-1 (As per Section-56 with in 2 (two) months from the date of allotment of shares.