In this Flash editorial, the author begins by referring the provisions of Section 62(1) (c) preferential allotment of shares, Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 and Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 concerning to the Preferential allotment of Shares of the Company also makes an endeavor to light up on provisions and process of allotment of shares through Preferential allotment of shares, difference between Private Placement of Shares & Preferential allotment of shares etc.
There are many ways to issue shares like: Right Issue of Shares, Private Placement of Shares, ESOP, Sweat equity shares, preferential allotment of shares etc.
Ahead of starting the study on provisions of preferential allotment of shares (hereafter referred as “PAS”) we may understand meaning of PAS. The expression ‘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.
Through preferential allotment of shares company can issue following type of shares / securities:
√ Issuance of Equity shares.
√ Issuance of Fully or partly convertible debentures
√ Issuance of any other securities convertible into equity shares
CONDITIONS FOR PREFERENTIAL ALLOTMENT OF SHARES
A. Offer to be previously approved by Special Resolution:
The proposed offer of shares or invitation to subscribe shares has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offer of Invitation.
B. Authorization in Article of Association:
There should be authority in AOA of the Company to issue shares/ securities through PAS. If such power is absent then amend the clauses of AOA to insert power to PAS.
C. Maximum No. of persons to whom offer can be made:
The restriction of 200 member would be reckoned individually for each kind of shares / security i.e. (equity share, preference share or debenture).
D. Finalization of name of Allottees:
As per rule 13(2)(d) Company have to mention the the names of the proposed Allottees and the percentage of post preferential offer capital that may be held by them in the explanatory statement to be issued for the General Meeting.
E. Offer Letter (PAS -4):
The Company shall prepare the offer letter in form PAS-4 and maintain the complete record of PAS in form PAS-5. In case of any preferential offer made by a company to one or more existing members only then no need to prepare offer letter in PAS-4 format and no need to prepare PAS-5.
F. Time period for completion of the Allotment:
The allotment of securities on a preferential basis shall be completed within a period of twelve months 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.
The 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. Whichever is earlier.
G. Valuation report:
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.
H. Application Form:
The offer letter shall be accompanied by an application form 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, within thirty days of recording the names of such persons at extra ordinary general meeting.
I. No further offer till completion of earlier offer:The requirements or provision of sub-section (3) of Section-42 shall apply in respect of offer or invitation of each kind of Shares / security and no offer or invitation of another kind of security shall be made unless allotments with respect to offer or invitation made earlier in respect of any other kind of security in completed.
J. Value of Offer and invitation:The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities. The shareholder can accept less value of shares.
K. Separate Bank Account:
Except in case of issue of shares for cash or consideration other than cash the following provisions required to follow:
I. Other Conditions:
Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to be complied with
STEP WISE PROCEDURE OF PRIVATE PLACEMENT
Call Meeting of Board Director:
Hold the Board Meeting:
Hold Extra Ordinary general Meeting:
Circulate Letter of Offer in form PAS-4:
File Form with Registrar:
Open Separate Bank Account:
File Form with Registrar:
File two e-form GNL-2 with Registrar within 30 days of circulation of offer letter.
Call Board Meeting after receiving of allotment of money.
Hold the Board Meeting:
File form with ROC:
File PAS-3 with Registrar of Company.
Issue Share Certificate:
Issue Share Certificate in Form- SH-1 (As per Section-56 with in 2 (two) months from the date of allotment of shares.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at email@example.com)