Procedures for Preferential Issues

Procedures for preferential issues are as given below:

While doing the issue of shares, the procedures for preferential issues are very important to follow. We have to comply with all the rules and regulations provided in the Companies Act, 2013.

1. Articles of association (AOA) authorized the issue and then,
2. Send notice to all the director of the company and then,
3. Conduct a board meeting to approve and then,
4. The list of identified persons to whom the securities are to be allotted and then,
5. To approve the draft offer letter (PAS-4),
6. To approve the notice for conducting the extraordinary general meeting.
7. Send a notice of EGM to all the members of the company along with an explanation statement.
8. Conduct Extraordinary General Meeting passes a special resolution for approving private placement (preferential issues allotment) and a letter of offer.
9. File the Special Resolution through Form MGT-14 within 30 days from the date of the EGM.
10. company shall issue private placement offer and application letter only after filling MGT-14.
11. company shall maintain a complete record of private placement offers in Form PAS-5.
12. File PAS-3 within 15 days of allotment, along with a complete list of all the allottees containing.
13. The full name, address, PAN, and email ID of such a security holder.
14. The class of security held.
15. The date of the allotment of security.
16. The number of securities, nominal value and amount paid on such securities,
17. And particulars of consideration received if the securities were issued for consideration other than cash.

About Preferential Issues Allotment:

A preferential Issues allotment is an offer for the allotment of securities to a selected group of investors on a preferential issues basis. For raising capital from the market, it is not always suitable for the company to raise funds from the public at large in the form of an IPO or FPO because it is a time-consuming and expensive process. However, they selected a group of people to raising the same The process is called preferential issues allotment, which is more simple and less expensive in comparison to the initial public offer in the market.

Attachments and Documents Required for Preferential Issues Allotment:

1. A list of allottees and a separate list for each allotment are mandatory.
2. Copy of the board or shareholder resolution approving the allotment of shares.
3. A valuation report from the registered valuer is mandatory in cases obtained from the valuer.
4. Copy of contract/completed particulars of contract duly stamped in case securities are issued other than cash
5. A complete record of private placement offers and acceptances in Form PAS-5 is mandatory in the case of private placement.
6. A copy of the special resolution authorizing the issue of bonus shares is mandatory in the case of a bonus issue.

FAQs:

What is the difference between preferential issues allotment and private placement?

As per Explanation II to Section 42(2), private placement means any offer of securities or invitation to subscribe securities to a select group of persons by a company other than by way of a public offer or the issue of a private placement offer letter that satisfies the conditions specified in the section.

As per Section 62(1)(c), where at any time a company having a share capital proceeds to increase its subscribed capital by the issue of further shares, such shares shall be offered to any persons, if it is authorised by the special resolution of the company, whether or not those persons include the persons referred to in clause (a) or clause (b) of Section 62(1), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer, subject to such conditions as may be prescribed.

Therefore, it may be inferred that if the offer for securities is given to a select group / close of persons, then the same is treated as private placement under Section 42, whereas if the offer for securities is given to certain identified persons, which may include employees or current members of the company, the same is treated as a special allotment under Section 62(1)(c).

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