In this article Author explains Difference Between Right issue, Private Placement and  Preferential Allotment under Companies Act, 2013 read with Companies (share Capital and debentures) Rules, 2014 and Companies (Prospectus and allotment of securities) Rules, 2014.

Chart of Difference Between Right issue Private Placement Preferential Allotment

Sr. No Basis of Difference Right Issue Private Issue 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 and Section 42 read with rule 14 Companies (Prospectus and allotment of securities) Rules,2014
2 Type of Security Only Shares can issue. (Equity and Preference) Any security can issue. (Equity, Preference Debenture etc.) Only shares can issue (Equity and Preferene)
3 Eligible for Offer Issue of shares to existing Equity 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
Max during year- 200 persons
Issue of shares to Both Existing Shareholders and/or outsiders.
4 Approval Required Approval of Board of Director through Board Resolution required. 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 minimum offer period defined under this section. However, maxium period of offer can be 365 days. No specific minimum offer period defined under this section. However, maxium period of offer can be 365 days.
6 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 offer only to existing members.
7 Forms to be filled 1.PAS-3(with in 30 days from allotment)
PAS-3 needs to file with in 30 days of passing of board resolution for allotment of shares.
1. MGT-14 (with in 30 days passing of special resoution in general meeting)
2. PAS-3(with in 15 days of allotment of shares)
1. MGT-14 (with in 30 days passing of special resoution in general meeting)
2. PAS-3(with in 15 days of allotment of shares)
8 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. Within 60 days for the Date of Receipt of Application Money.
9 Separate Bank Account No Separate Bank Account Required Separate Bank account Required Separate Bank account Required
10 Fund utilisation Fund can be utilize any time after receipt of same Fund can’t be utilise only after filing of PAS-3. Fund can’t be utilise only after filing of PAS-3.
11 Valuation Report  Valuation Report is not Mandatory,
*Valuation report is mandatory only in case of issue to non- existing non-resident shareholder
Valuation Report is  not Mandatory Valuation Report is Mandatory.
12 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
13 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 read with rule 14(2) of Companies (Prospectus and allotment of securities) Rules, 2014

14 Minimum Subscription or Investment size No such minimum subscription required No such minimum subscription required No such minimum subscription required
15 Mode of Receipt of Subscription money Subscription money can be receive in cash or through Banking Channel Subscription money can be receive only through Banking Channel Subscription money can be receive in cash or through Banking Channel
16 Debenture issue Debenture can’t be issue through right issue of shares Debenture can be issue through right issue of shares Debenture can’t be issue through this method
17 Non Convertible Preference Shares can’t be issue through right issue of shares can be issue through right issue of shares can’t be issue through this method

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore.

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One Comment

  1. CS Najmunnissa J says:

    Hi

    As per sl.no 11 on valuation of Rights issue, you have mentioned “*Valuation report is mandatory only in case of issue to non- existing non-resident shareholder”.
    You have mentioned as non-existing shareholders. As per Rights issue, only existing shareholder has rights. Please correct.

    And i want one clarification: Whether valuation report is required in the following cases under IT Act and Companies act.
    Rights issue with premium or without premium by private Co and Listed company. Kindly explain with provision.

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