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Preferential allotment

Shridhi Jain (Company Secretary) (1678 Points)

19 April 2012

Dear members,

An unlisted pub co. wants to allot shares to only one shareholder (who is also a director),

Do we take it as preferential allotment or right issue ?

If preferential allotment, pls tell me the procedure.

Also, pls tell me the difference b/w preferential allotment and private placement.

Thanks in advance.

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6 Replies

(Guest)

Dear Shridhi,

The case which you have talked about is certainly relating to 'Issue of shares on Preferential basis' and not of a 'Rights Issue'.

For understanding the reason behind this, let me explain you below concepts clearly :

(1) Issue of shares on Preferential basis :

In certain situations, it may not be desirable to issue shares to the public at large. Since issuing shares to the public is a very detailed and expensive excercise. It may be avoided where the issue size is small which can be fully subscribed by the directors and existing shareholders. This is called as 'Issue of shares on preferential basis'.

(2) Issue of shares on Private Placement basis :

When issue size exceeds the resources that can be raised from directors and existing shareholders, there is a possibility of 'placing' shares 'privately' with friends, associates, financial Institutions, mutual funds etc. This is called as 'Issue of shares on private placement basis'

(3) Rights Issue :

Shares offered to all existing shareholders of a company is called as 'Rights Issue'. In the rights shares, the shareholders of a company have a pre-emptive right to subscribe to these shares. (Please note that a director may or may not be a shareholder. If he is not a shareholder, the rights shares would not be offered to him.)

(4) Public Issue :

Offer or invitation to subscribe for shares or debentures made by companies to 50 persons or more will be treated as 'public issue'.

Procedure for preferential allotment :

1. Hold a Board meeting. In that meeting, fix the date of General Meeting to pass a Special Resolution under Section 81 (1A).

2. File e-Form 23 with ROC within 30 days of General Meeting Resolution.

3. After passing Special Resolution in General Meeting, hold another Board Meeting for allotment of equity shares.

4. File e-Form 2 within 30 days of Board Meeting allotment Resolution.

Please note that, an unlisted public company has to follow 'Unlisted Public Companies (Preferential Allotment) Rules, 2003' while making the above allotment of shares and MCA is contemplating to introduce more stringent rules by name 'Unlisted Public Companies (Prefrential Allotment) Amendment Rules, 2011'. So, I advise you to complete the allotment as soon as possible.

For your reference, I have attached, Unlisted Public Companies (Preferential Allotment) Rules, 2003 with this reply. Please find the same.

Regards,

Veeral Gandhi

Attached File : 698334 967883 unlisted public companies preferential allotment rules 2003.pdf downloaded: 1356 times

1 Like

Shridhi Jain (Company Secretary) (1678 Points)
Replied 20 April 2012

Thanks Veeral Ji,

Pls tell me in the above case, if the company is allotting shares on premium then do the company require share valuation certificate from CA ?

(Guest)

As per the Unlisted Public Companies (Preferential Allotment) Rules, 2003, only the Audit Certificate has to be obtained from the statutory auditors of the issuing company / company secretary in practice certifying that the issue of the said instruments is being made in accordance with these Rules. Such certificate shall be laid before the meeting of the shareholders convened to consider the proposed issue.

Nidhi (Asst. Company Secretary) (86 Points)
Replied 09 June 2012

Hello Sir

I just wanted to clarify one thing that if we are alloting shares to the existing shareholder who is director also, the ways is to allot only as preferential allotment and not otherwise?? Can't it be just the normal allotment.??

In this case are we violating provisions of Section 81 (1A)??

And, if yes . Then hw can we rectify the mistake???

Please clarify. Its urgent..

Thanks & Regards

Nidhi

lovely (student) (23 Points)
Replied 12 August 2014

can public company issue shares to private company who is not a existing member for public company?

if yes please post the procedures for same...thanx in advance

Mayank Saxena (CS) (21 Points)
Replied 17 February 2015

Dear Sir,

i am facing some problem to issue prefernce share capital,

Actualy my company is a listed company bt we does not have prefernce share capital, now we want to issue prefernce share capital altough we dont want to list prefernce share capital in stock exchange,
so sir please tell me how can i issue it n what would be the procedure ....

i read that we can issue through private placement and preferntial allotment....bt wat is the difference between both n what would be the easiest way for me to issue prefernce share capital...

Thanking You

Mayank Saxena