Difference between rights issue & preferrential issue

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Srinivasa Kiran

Company Secretary

30 Points Posted on 27 February 2012

I would like to have the exact difference between Rights Issue & Preferential Issue particularly for Unlisted companies...

I have prepared a small material basing on the available sources. I request our members to comment and if they have any material, pls. forward it to me for my discussion.

Regards

Kiran

Replies (2)

CS Aditya Agrawal

PCS

89 Points Posted on 27 February 2012

Hi!

Right Issue means issuance of shares to the existing shareholders only.

Prefrential Issue means issuance of shares to the Promoters and their relatives whether they are existing shareholder of the company or not.

Regards

Ankur Garg

Company Secretary and Compliance Officer

75761 Points Posted on 27 February 2012

In Simple Terms:-

Preferential allotment is a way of infusing fresh equity in the business by issuing shares or warrants to the specified entities at specific prices to a promoter or promoter group or a person acting in concert (PAC) or institutional players.

There are guidelines of SEBI for Listed Companies and for unlisted companies there are "Unlisted Public Companies (Preferential Allotment) Rules, 2003" .

While Preferential allotment is to specific people, Rights Issue is an issue where fresh equity is infused by making offer to all the "Existing Shareholders" and not to specific people.

In public unlisted company Section 81 deals with Right issue and section 81(1A) deals with Preferential Allotment.

Regards

Ankur