Procedure for issuance of shares on preferential basis under Companies Act, 2013
Introduction: Embarking on the issuance of shares on a preferential basis in 2023 requires a comprehensive understanding of the legal intricacies and procedural steps involved. This step-by-step guide aims to demystify the process, offering a clear roadmap for companies seeking to conduct preferential allotments. From convening board meetings to filing requisite forms, each stage is meticulously outlined to ensure compliance with relevant legal provisions. Whether you are a seasoned corporate entity or a budding startup, this guide provides valuable insights, facilitating a smooth and transparent issuance of shares while adhering to the regulatory framework.
Step up plan for Issuance of Shares on Preferential basis
| S. N0. | STEPS/ HEADING | Legal Provision | Details | Form No. | Time Period | Additional Information |
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Issuance of Shares on Preferential Basis Section 62 and Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 |
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| 1. | Calling the board meeting for issuing shares on preferential basis | Section 173 and SS 1 | Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company. The agenda of the board meeting shall also be along with the notice. | Notice of the meeting
At least 7 days before the date of Board Meeting. |
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| 2. | Board Meeting | Rule 13 | Hold a meeting of Board of Directors of the Company to approve the following agendas:
· Issue of Securities by way of Private Placement Basis · Number of securities to be issued. · Finalization of Draft offer letter in Form PAS-4 · Approve the notice of calling for Extra-Ordinary General Meeting of the shareholders of the Company to take members approval. · Opening of a separate Bank Account in a schedule Bank to receive application money · Deciding the list of allottees · Take note of the Valuation Report and decided the price of security. · Decide the offer period |
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| 3. | Valuation Report | Rule 13 and Section and Section 62(1)(c) | The price of the shares or other securities to be issued on a preferential basis, either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer.
Where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation. The price of shares or other securities to be issued on preferential basis shall not be less than the price determined on the basis of valuation report of a registered valuer. |
Listed Companies (Rule 13)
The price of shares to be issued on a preferential basis by a listed company shall not be required to be determined by the valuation report of a registered valuer. |
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| 4. | Opening a separate Bank Account | Section 42(6) | The company is required to open a separate bank account for receiving the amount of consideration in respect of the shares proposed to be issued by way of preferential allotment. | |||
| 5. | Notice for Extraordinary General Meeting | Section 101 and SS 2 | Notice of the General Meeting shall be given to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice. | Notice for the Meeting
At least clear 21 days before the actual date of Meeting |
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| 6. | Explanatory Statement | Section 102 and Rule 13 | The explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 shall provide the complete material facts concerned with and relevant to the issue of such shares, including-
(i) the objects of the issue; (ii) the total number of shares or other securities to be issued; (iii) the price or price band at/within which the allotment is proposed; (iv) basis on which the price has been arrived at along with report of the registered valuer; (v) relevant date with reference to which the price has been arrived at; (vi) the class or classes of persons to whom the allotment is proposed to be made; (vii) intention of promoters, directors or key managerial personnel to subscribe to the offer; (viii) the proposed time within which the allotment shall be completed; (ix) the names of the proposed allottees and the percentage of post preferential offer capital that may be held by them; (x) the change in control, if any, in the company that would occur consequent to the preferential offer; (xi) the number of persons to whom allotment on preferential basis have already been made during the year, in terms of number of securities as well as price; (xii) the justification for the allotment proposed to be made for consideration other than cash together with valuation report of the registered valuer. (xiii) The pre issue and post issue shareholding pattern of the company. Format provided in Rule 13 |
Listed Companies (Rule 13)
Where the preferential offer of shares or other securities is made by a company whose share or other securities are listed on a recognized stock exchange, such preferential offer shall be made in accordance with the provisions of the Companies Act and regulations made by the Securities and Exchange Board of India.
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| 7. | Extra Ordinary General Meeting | Section 100 | Convene Extra-Ordinary General Meeting for the followings purpose:
• Pass Special Resolution to approve Private Placement. • Approve the Offer cum application Letter (form PAS-4) to be sent to the Identified Person |
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| 8. | Form MGT-14 | Companies Management and Administration Rules, 2014 | File MGT-14 before the issue of Letter of Offer.
MGT-14 must contain a copy of the approved special resolution and the explanatory statement. |
Form MGT-14 | Within 30 days of passing the resolution. | |
| 9. | Private placement offer cum application letter | Section 42(3) and Rule 14 (3) | A private placement offer cum application letter shall be in the form of an application serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode. | Form PAS-4 | Within thirty days of recording the name of such person | Listed Company
Where the company is listed, Form should be filed with the Securities and Exchange Board, within a period of thirty days of circulation of the private placement offer letter.s |
| After receipt of letter of offer, the allottees will make payment for the consideration amount in the bank account opened by the company specifically for this purpose within the offer period | ||||||
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10. |
Calling the board meeting for allotment preference shares |
Section 173 and SS 1 |
Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company. The agenda of the board meeting shall also be along with the notice. |
Notice of the meeting At least 7 days before the date of Board Meeting. |
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| 11. | Board Meeting for allotment of Preference Share | Section 42(6) | A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities. | |||
| 12. | Convening Board Meeting for allotment of shares | Section 42(6) | After Closure of Offer Period call a Board Meeting and pass Resolution for allotment of securities and issue securities certificate | |||
| 13. | Filing Return of Allotment | Rule 14(6) | A return of allotment of securities under section 42 shall be filed with the Registrar along with a complete list of all the allottees containing-
(i) the full name, address, permanent Account Number and E-mail ID of such security holder; (ii) the class of security held; (iii) the date of allotment of security; (iv) the number of securities herds, nominal value and amount paid on such securities; and particulars of consideration received if tire securities were issued for consideration other than cash.
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Form PAS-3 | Within fifteen days of allotment in and with the fee as provided in the Companies (Registration offices and Fees) Rules, 2014 | |
| 14. | Record of Private Placement Offer | Rule 14(4) | The company shall maintain a complete record of private placement offers | Form PAS-5 | ||
| 15. | Share Certificate and Stamp Duty | Section- 46(3) and Rule 5 of Companies (Share Capital and Debentures) Rules, 2014 | The Company shall issue share certificates to all the allottees and make payment of stamp duty on such share certificates within 30 days of issuance thereof. | Form SH-1 | Within 2 months from the date of allotment of shares. | |
| 16. | Form Foreign Currency-Gross Provisional Return (FC-GPR) | Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 | An Indian company issuing equity instruments to a person resident outside India and where such issue is reckoned as Foreign Direct Investment, defined under the rules, shall report such issue. | Form FC-GPR | Form FC-GPR should be filed with RBI within thirty days from the date of issue of equity instruments | |
Conclusion: Issuing shares on preferential basis involves a meticulous process guided by legal provisions. This step-by-step guide provides clarity on the necessary actions, forms, and timelines, ensuring a compliant and transparent issuance of shares in 2023.
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