CS M. Kurthalanathan
Section 62 of the Companies Act,2013 deals with the Further Issue of share capital to Employees under Employee Stock Options Scheme and to any persons on preferential basis. In my previous article (Part –I), I have discussed about the Issue of shares to the employees under Employee Stock Options Scheme (ESOS).
Now in this article (Part-II), I have discussed about the Issue of shares on preferential basis.
A company having a share capital may issue further shares to any persons, if it is authorised by a special resolution,, 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 prescribed under Rule 13 of the Companies (Share Capital and Debentures) Rules,2014
Issue of Shares on Preferential basis:
For the purposes of section 62(1)(c), if authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act.(Private Placement)
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.
‘Preferential Offer’ means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities;
“shares or other securities” means equity shares, fully convertible debentures, partly convertible debentures or any other securities, which would be convertible into or exchanged with equity shares at a later date.
Preferential offer of shares or other securities:
|Listed Company||Unlisted Company|
|The preferential offer of shares or other securities shall be made in accordance with the provisions of the Act & rules and regulations made by the Securities and Exchange Board||The preferential offer of shares or other securities shall be made in accordance with the provisions of the Act and rules.|
Authorised by AoA;
The issue is authorized by its articles of association;
Authorised by Special Resolution:
The issue has been authorized by a special resolution of the members;
Fully Paid up:
The securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment.
Disclosure in notice:
The company shall make the following disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act:
(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 KMP 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 in the following format-
|S.No||Category||Pre Issue||Post Issue|
|No. of Shares held||% of share holding||No. of Shares held||% of share holding|
|Sub total (A)|
|Private Corporate Bodies|
|Directors and Relatives|
|Others (Including NRIs)|
Period of Preferential allotment:
The allotment of securities on a preferential basis made pursuant to the special resolution passed shall be completed within a period of 12months from the date of passing of the special resolution.
If the allotment of securities is not completed within twelve months from the date of passing of the special resolution, another special resolution shall be passed for the company to complete such allotment thereafter.
Share Price determined by valuation report:
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.
If convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares shall be determined beforehand on the basis of a valuation report of a registered valuer and also complied with the provisions of section 62 of the Act.
Preferential offer for consideration other than cash:
If 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
If the preferential offer of shares is made for a non-cash consideration, such non-cash consideration shall be treated in the following manner in the books of account of the company-
|It takes the form of a depreciable or amortizable asset||It shall be carried to the balance sheet of the company in accordance with the accounting standards|
|If it is not applicable||It shall be expensed as provided in the accounting standards.|