Article compares Right issue, Private placement and Preferential Allotment on following points- Applicable provisions under Companies Act, 2013, Meaning & Coverage, Definition of Security, If any, Approval Required, Offer period, Mode of Dispatch of offer letter, Format of offer Letter, Forms to be filled, Time period for allotment of securities , Allotment Mode (Whether Cash/Banking route or kind), Bank Account, Fund utilisation, Valuation Report, Minimum Subscription or Investment size, Renounce the offer letter option and Explanatory Statement.
| Brief comparison for Private Limited Company | ||||
| S.No | Basis of difference | Right Issue | Private Placement | Preferential Allotment |
| 1 | Applicable provisions under Companies Act, 2013 | Section 62(1)(a) read with Rules | Section 42 read with rule 14 Companies (Prospectus and allotment of securities) Rules,2014 | Section 62(1)(c ) read with rules 13 of Companies (share Capital and debentures)Rules,2014 |
| 2 | Meaning & Coverage | Issue of shares to existing shareholder in proportion to their existing shareholding | Offer of shares to Investors or any selected group of person or any outsider (other than by way of public offer) Invitation in one go max- 50 Persons | Issue of shares to Both Existing Shareholders and/or outsiders |
| 3 | Definition of Security, If any | Not Defined under provision | Securities mean “Securities means the Securities defined in clause (h) of Section 2(81) of Securities Contracts (Regulation) Act, 1956. | Under Rule 13 (1) Shares or Securities means equity shares, fully or partially convertible debentures or any other securities, which would be convertible or exchanged into Equity Shares |
| 4 | Approval Required | Board approval | Board & Shareholder approval *(General Meeting) | Board & Shareholder approval *(General Meeting) |
| 5 | Offer period | Minimum Period-15 days Maximum Period -30 days (however in case of private company if consent from 90% of the shareholder then the offer period can be less then as defined above) * Add 3 additional days extra for dispatch | No specific offer period defined under this section *however the amount of minimum subscription (i.e Rs 20,000) shall be received with on 30 days | No specific offer period defined under this section *however the amount of minimum subscription(i.e Rs 20,000) shall be received with on 30 days *Add 3 days extra for dispatch |
| 6 | Mode of Dispatch of offer letter | Registered post, speed post, or through electronic mode to all existing shareholder before 3 days of opening of the issue | In Writing, or in Electronic mode with in 30 days of recording the name*(PAS-5) | Registered post, speed post, or through electronic mode to all existing shareholder before 3 days of opening of the issue |
| 7 | Format of offer Letter | No specific format | PAS-4(offer Letter) PAS-5(Complete record) | PAS-4(offer Letter) PAS-5(Complete record) *No such Format in case of existing members. |
| 8 | Forms to be filled | 1.PAS-3(with in 30 days from allotment) | 1. MGT-14 (with in 30 days from Shareholder Approval) 2. PAS-3(with in 30 days from allotment) 3. GNL-2(Offer Letter & Record of offer) | 1. MGT-14 (with in 30 days from Shareholder Approval) (with in 30 days from allotment) (Offer Letter & Record of offer) |
| 9 | Time period for allotment of securities *otherwise it will be treated as deposit | Within 60 days for the Date of Receipt of Application Money. | Within 60 days for the Date of Receipt of Application Money. | Allotment shall be made within 12 months of passing the Special Resolution but in case of receipt of money then allotment should be 60 days from receipt of application money, whichever is earlier. |
| 10 | Allotment Mode (Whether Cash/Banking route or kind) | Company can issue share on cash or or through banking Channels | All the monies payable towards subscription shall be paid through Cheque, Demand Draft or banking channels , but not in cash | Shares can be issued for Cash or for a Consideration other than Cash. *mandatory Valuation certificate from CA for price determination |
| 11 | Bank Account | No Separate Bank Account Required | Separate Bank account in Scheduled Bank Required | If allotment in cash then not required otherwise Separate Bank account in Scheduled Bank is required |
| 12 | Fund utilisation | Fund can’t be utilise until basis of allotment is finalised. | Fund can’t be utilise until Allotment is made | Fund can’t be utilise until Allotment is made |
| 13 | Valuation Report | Valuation Report is not Mandatory, *Valuation report is mandatory only in case of issue to existing non-resident shareholder | Valuation Report is not Mandatory *Valuation report is mandatory only in case of issue to non-resident shareholder | Valuation Report is Mandatory. |
| 14 | Minimum Subscription or Investment size | No such minimum subscription required | Minimum investment size is Rs 20,000 of face value of the securities | No such minimum subscription required |
| 15 | Renounce the offer letter option | Shareholders have rights to Renounce/accept/reject the offer letter *Subject to authorisation in AOA | No such right available | No such right available |
| 16 | Explanatory Statement | Not applicable because no shareholder approval is required | Notice should contain Explanatory statement as per rule 14(2) of Companies (Prospectus and allotment of securities) Rules,2014 | Notice should contain Explanatory statement according to rule 13 (d) of Companies (share Capital and debentures) Rules, 2014 |
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Author Bio
Apt and wonderful article Suraj ji!
Can we utilise the share application money before allotment of shares in case of right issue?
nice article.
Very nice article.
Thank you for such precise comparison of Right,Private Placement & Preferential Allotment of shares.Expecting more detailed information in this regard.
Perfect one…!
However if i am not wrong the minimum investment size of Rs 20000 is dispensed with. Please correct me if I am wrong