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Preferential allotment vs private placement vs right issue - An analysis

Prashant Panda 
on 16 December 2019

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Background and Objective:-

India companies in order to invest funds in its business operations, explore many options like Issue of Shares, Debentures, Zero Coupon Bonds, Public Deposits, Loans from Banks and Financial Institutions and other traditional sources.

One of the common and cheap costs of borrowings is by “Issue of Equity shares”. While dealing with issue of equity shares other than issue to Public, we came across many phases as well as modalities  like Private Placement, Preferential allotment , Right issue, Bonus Issue, issue by ESOP, Sweat equity  etc .

We will confine our discussion only on preferential allotment, Issue by way of Private Placement and Right issue by Unlisted Companies.

The below table explains the detail of the parameters in line with the Companies Act 2013 read with applicable rules made thereunder :-

Preferential allotment vs private placement vs right issue - An analysis

Sl No

Parameters

Private Placement

Preferential Allotment

Right issue

1

Meaning

Offer made to specified investor to invest fund. They are not the members of the company.

Allotment of shares to some other persons who are given “preference” over existing members.

Allotment of shares to  “existing” shareholders.

2

Sections & Rule of Companies Act, 2013

Section 42 & Rule 14 of the Companies (Prospectus & Allotment of Securities) Rules, 2014

Section 62(1)(c) & section 42 read with rule 13 of the Companies (Share Capital & Debentures) Rules, 2014 and rule 14 of the Companies (Prospectus & Allotment of Securities) Rules, 2014

Section 62(1)(a)

3

Board Approval

Required

Required

Required

4

Share Holders approval

Prior approval by special resolution

Authorised by Special resolution

Not required

5

Valuation certificate

Required from Regd Valuer

Required from Regd Valuer

Required from a practicing CA

7

Any other form to be filed-MGT-14

Required to be filed with ROC within 30 days of passing of special resolution

Required to be filed with ROC within 30 days of passing of special resolution

Only applicable to public companies who file MGT-14 within 30 days passing Borad Resolution

8

Offer Letter

Offer letter is required

Applicable only if offer is made to other persons including existing members

Offer Letter is required

9

Form Required for Offer Letter

PAS-4

PAS-4

No such prescribed format

10

Right of Renunciation

Not available

Not available

Available

11

Opening of Separate Bank A/c

Required

Required

Not Required

12

Utilisation of Money

Cannot utilise the money unless the shares are allotted

Cannot utilise the money unless the shares are allotted

No such restriction

13

Allotment time period

60 days from the date of receipt of application money

60 days from the date of receipt of application money

60 days from the date of receipt of application money

14

Return of allotment –PAS-3

Within 15 days from the date of allotment

Within 30 days from the date of allotment

Within 30 days from the date of allotment

15

Restrictions on number of persons to whom offer can be made

Not more than 200 in aggregate in a financial year

Not more than 200 in aggregate in a financial year

No such restriction

16

Issue Price

Not more than Valuation made

Not more than Valuation made

Can be at Face Value

17

Sending of Notice (Mode)

Regd post/speedpost/E-mail/Courier within 30 days of recording the name of such persons

Regd post/speedpost/E-mail/Courier within 30 days of recording the name of such persons

Regd post/speedpost/E-mail/Courier /hand delivery atleast 3 days before the issue made.

Note: "valuer" means a person registered with the authority in accordance with these rules and the term "registered valuer" shall be construed accordingly.


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