issue of preference shares

Statement in-lieu of prospectus is not required.

If preferential allotment is to be made, provisions of section 81 in respect of Rights Issue must be complied with e.g. special resolution in general meeting.

In case of listed company, the pricing of preferential issue should be made as per SEBI guidelines. In case of unlisted company, pricing of preferential issue can be made as may be decided by Board of Directors. Other provisions and procedures are similar to issue by private placement.

Provisions are made in Unlisted Public Companies (Preferential Allotment) Rules, 2003.

Applicability of rules - The rules apply to all unlisted public companies  in respect of preferential issue of equity shares, fully convertible debentures, partly convertible debentures or any other financial instrument which will be convertible into or exchanged with equity shares at a later date. These include shares issued through private placement by company and issue of shares to promoters and their relatives either in public issue or otherwise. [In case of unlisted company, how can there be ‘public issue’ ?]

‘Promoter’ means persons who are in overall control of the company or those who hold themselves as promoters.

The intention of rules is to control preferential allotment to promoters. However, the wording of rules is such that the rules apply to all preferential issues of public unlisted companies covered under section 8(1A).

Special resolution and explanatory statement -  - Issue of preferential shares will be by special resolution in general meeting. Such issue should be authorised under Articles [Otherwise, Articles will have to be amended before passing the resolution. Model Articles in Table A do not have such specific provision. Really when Statute itself authorizes preferential issue, providing for the same in Articles seems meaningless]. Explanatory statement to notice of meeting shall indicate particulars about pricing and relevant date of pricing, object of preferential offer, class or classes of persons to whom preferential issue is proposed, intention of promoters/directors/key management persons to subscribe, shareholding pattern of promoters and other classes before and after the offer, proposed time within which allotment will be completed and whether a change in control is intended or expected.

Validity period of special resolution - Special resolution should be acted within 12 months. Thus, if issue is not made within 12 months, fresh special resolution will be required.

Certificate from auditor/PCS - Statutory auditors / practicing company shall certify that the issue of the instrument is being made in accordance with rules. The certificate shall be placed before the general meeting.

Preferential allotment in case of private companies – The rules are not applicable to private company. In fact section 81 itself does not apply to a private company.

Regards

Thank u so much Jaideep....

u solved my query at one go.

Wat is the procedure in case of listed co.?

The SEBI (ICDR) regulations are applicable in case of listed securities. In case of listed Equity shares, the issue price has to be determined according to these regulations. But in case of preference shares, the SEBI regulations are silent. Hence ,Issuer can determine the minimumapplicable price accordingly. 

For listed Companies refer CHAPTER VII of ICDR Regulations.

Regards

Jaideep Pandya

hi jaideep

in chapter VII of ICDR, preferencial issue is given i.e. issue of equity shares on preference basis bt i need to knw the issue of preference shares by listed co. on private placement basis. I mean Pref. Shares are to be issued to some selected person.

Kindly reply. Its urgent.

Regards,

Shridhi Jain

Upppppps missed out....!

In my view:

As per SEBI ICDR “specified securities" means equity shares and convertible securities; If preference shares are convertible, then it will attract ICDR.

For normal preference shares, procedures of section 81(1A) will be applicable.

Hope for some experts comment.

Regards

Only section 80 and 81(1A) are to be complied with and normal disclosure regarding the change in capital is to be disclosed to the Stock Exchange.

Thanks Sir,

Thanks to u...

Its of gr8 help.....

Dear frnds,

In case of Issue of preference shares to preferential basis, i.e. shares to be issued to some selected person only, is Statement in Lieu of Prospectus required ?

Pref. shares to be issued in listed co. Kindly tell me step by step procedure to be followed.

Regards,

Shridhi Jain

Consider following:-

Issue notice to Stock Exchange that the Board meeting is scheduled to discuss on the issuace of preference shares.

Held a board meeting and discuss and approve the proposal.

Give Intimation to the Stock Exchange about the change.

Held a general meeting and pass special resolution that the Board is authorised to issue preference shares as and when desired on preferential basis.

Give prior intimation to the stock exchange that the board meeting is scheduled to discuss and if found appropriate allotment of preference shares on preferential basis.

(Clearly mention that the shares are not sought to be listed on any of the Stock Exchange.)

Held a Board meeting and approve the terms and conditions of Preference shares and allot the Preference shares on preferential basis.

Intimate the stock exchange about the change in capital and clearly mention that the shares are not sought to be listed on any of the Stock Exchange.

File form 2 within 30 days.

thank u so much sir....

Pls tell me that do we need to inform stock exchange at each n every step we take... or we jst inform after the EGM..???

It is not required to inform about every step. Only change in capital is required to be informed to the Stock Exchange. But it is good corporate government practice to inform stock exchange about the recent changes and developments.