A Company can raise reserves through three methods: (1) Deposits (2) Loans (3) Capital. Under Companies Amendment Act 2017, Company can bring funds or Capital up in three different ways: (1) Private Placement/Preferential Allotment (2) Right Issue (3) Bonus Issue. Let’s discuss  funds raising through preferential allotment under section 62 of Companies Act 2013.

Introduction

Preferential Allotment means an issue of shares or other securities, by a Company to any select person or group of persons on preferential basis. A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 62 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.

In accordance with the SEBI guidelines if shares are issued on preferential basis by listed entity then these shares to be locked in for certain period of time. The specified securities allotted on preferential basis to promoter or promoter group shall be lock in for period of 3 years from the date of trading approval.

Check points:-

  • Whether authorized share capital is sufficient for issue of shares on preferential basis and if authorized capital is not sufficient, then first alter the capital clause of the memorandum of association of the company.
  • Confirm that where the 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 has submitted his valuation report with justification for such valuation.
  • Confirm that the allotment of securities on a preferential basis made pursuant to special resolution, passed pursuant to Rule 13(2)(b) of the Companies (Share Capital and Debentures) Rules, 2014, is completed within a period of 12 months from the date of passing of special resolution.
  • The securities are to be allotted within 60 days from the date of receipt of the application money and if the company fails to allot securities, has to repay the application money to the subscribers within 15 days from the date of completion of 60 days and in case the company fails to repay the application money within the aforesaid period, the company is liable to repay application money along with interest at the rate of 12% p.a. from the expiry of the 60th
  • Ensure that non-compliance of above provisions shall be treated as public offer.

The provisions and procedures relating to issue of shares through private placement are as follows:

S. No. Particulars
1. Prepare a list of persons (not exceeding 50 in each offer and not more than 200 in the aggregate financial year for each kind of security) to whom offer may be made.
2. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.
3. Convene board meeting and pass the necessary resolutions.
4. Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).
5. File e-Form MGT-14 regarding board resolution for issuance of shares on preferential basis in accordance with the prescribed provisions.
6. Obtain Valuation Report from the Registered Valuer appointed by the company and the relevant date of the Valuation Report shall be at least 30 days prior to the date on which the general meeting of the company is scheduled to be held.
7. Send notice of general meeting to all directors, shareholders, auditors, secretarial auditors and Debenture Trustee, if any, of the company at least 21 days before the date of general meeting.
8. The explanatory statement annexed with the notice of general meeting will have disclosures as prescribed in the respective rules.
9. Convene general meeting and pass special resolution for issuance of shares on preferential offer basis.
10. Prepare draft minutes of shareholders’ meeting and for finalisation, send the draft minutes to the chairman of that meeting.
11. File e-Form MGT-14 with the Registrar of Companies within 30 days of passing of special resolution along with explanatory statement.
12. Prepare Private Placement Offer (Preferential Offer) cum application form.
13. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.
14 Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).
15. Send offer letter along with share application form to those persons, whose name and addresses are recorded by the company, to issue within 30 days from the date of recording the name of the persons and maintain record of preferential offer in prescribed Form.
16. The Private Placement (Preferential Offer) letter shall be serially numbered.
17. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting in accordance with the provisions of Companies Act 2013 and Secretarial standards.
18. Convene board meeting within 60 days of receipt of application money for passing of following resolutions:

• Allotment of shares on preferential basis.

• Authorisation to issue share certificates.

• Authorise to make necessary entries in the register of members.

• Filing of return of allotment in e-Form PAS-3.

19. Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).
20 Prepare list of allottees for filing with the Registrar of Companies.
21. File return of allotment in e-Form PAS-3 with the Registrar of Companies.

Republished with Amendments

Author Bio

Qualification: LL.B / Advocate
Company: Legal Forever
Location: Delhi, New Delhi, IN
Member Since: 19 Nov 2019 | Total Posts: 11
Legal Forever is a full service Law firm rendering services into the areas of Corporate Law, Partnership Firms, Statutory Compliance Audit, Legal advisory, Income Tax, Excise Laws, Service Tax, Intellectual Property Rights, recovery matters and Civil law related matters. We have extensive practice i View Full Profile

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