Back Ground and Objective:-
India companies in order to invest funds in its business operations, explore many options like Issue of Shares, Debentures, Zero Coupon Bonds, Public Deposits, Loans from Banks and Financial Institutions and other traditional sources.
One of the common and cheap costs of borrowings is by “Issue of Equity shares”. While dealing with issue of equity shares other than issue to Public, we came across many phases as well as modalities like Private Placement, Preferential allotment, Right issue, Bonus Issue, issue by ESOP, Sweat equity etc .
We will confine our discussion only on preferential allotment, Issue by way of Private Placement and Right issue by Unlisted Companies.
The below table explains the detail of the parameters in line with the Companies Act 2013 read with applicable rules made there under :-
Preferential Allotment Vs Private Placement Vs Right Issue
| Sl No | Parameters | Private Placement | Preferential Allotment | Right issue |
| 1 | Meaning | Offer made to specified investor to invest fund. They are not the members of the company. | Allotment of shares to some other persons who are given “preference” over existing members. | Allotment of shares to “existing” shareholders. |
| 2 | Sections & Rule of Companies Act, 2013 | Section 42 & Rule 14 of the Companies (Prospectus & Allotment of Securities) Rules, 2014 | Section 62(1)(c) & section 42 read with rule 13 of the Companies (Share Capital & Debentures) Rules, 2014 and rule 14 of the Companies (Prospectus & Allotment of Securities) Rules, 2014 | Section 62(1)(a) |
| 3 | Board Approval | Required | Required | Required |
| 4 | Share Holders approval | Prior approval by special resolution | Authorised by Special resolution | Not required |
| 5 | Valuation certificate | Required from Regd Valuer | Required from Regd Valuer | Required from a practicing CA |
| 7 | Any other form to be filed-MGT-14 | Required to be filed with ROC within 30 days of passing of special resolution | Required to be filed with ROC within 30 days of passing of special resolution | Only applicable to public companies who file MGT-14 within 30 days passing Borad Resolution |
| 8 | Offer Letter | Offer letter is required | Applicable only if offer is made to other persons including existing members | Offer Letter is required |
| 9 | Form Required for Offer Letter | PAS-4 | PAS-4 | No such prescribed format |
| 10 | Right of Renunciation | Not available | Not available | Available |
| 11 | Opening of Separate Bank A/c | Required | Required | Not Required |
| 12 | Utilisation of Money | Cannot utilise the money unless the shares are allotted | Cannot utilise the money unless the shares are allotted | No such restriction |
| 13 | Allotment time period | 60 days from the date of receipt of application money | 60 days from the date of receipt of application money | 60 days from the date of receipt of application money |
| 14 | Return of allotment –PAS-3 | Within 15 days from the date of allotment | Within 30 days from the date of allotment | Within 30 days from the date of allotment |
| 15 | Restrictions on number of persons to whom offer can be made | Not more than 200 in aggregate in a financial year | Not more than 200 in aggregate in a financial year | No such restriction |
| 16 | Issue Price | Not more than Valuation made | Not more than Valuation made | Can be at Face Value |
| 17 | Sending of Notice (Mode) | Regd post/speed post/E-mail/Courier within 30 days of recording the name of such persons | Regd post/speed post/E-mail/Courier within 30 days of recording the name of such persons | Regd post/speedpost/E-mail/Courier /hand delivery atleast 3 days before the issue made. |
Note: “valuer” means a person registered with the authority in accordance with these rules and the term “registered valuer” shall be construed accordingly.
Author Bio
Very informative and well elaborative article.