{"id":2200,"date":"2021-02-11T10:33:57","date_gmt":"2021-02-11T10:33:57","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=2200"},"modified":"2021-03-17T09:13:36","modified_gmt":"2021-03-17T09:13:36","slug":"procedure-and-forms-involved-in-preferential-allotment","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/","title":{"rendered":"What is the Procedure and Forms Involved in Preferential Allotment?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The <strong><em>Companies\nAct, 2013<\/em><\/strong>, allows the company to raise funds via preferential\nallotment, sweat equity shares, employee stock option plan and right issue.\nWhen the shares are issued through <strong><a href=\"https:\/\/swaritadvisors.com\/preferential-allotment\" class=\"text-primary\">preferential allotment<\/a><\/strong>,\nit helps the company to raise the capital much quickly. <strong><em>Section 62<\/em><\/strong> i.e. Allotment\nof Shares and <strong><em>Section 42<\/em><\/strong> i.e. Allotment of Securities of the Companies Act,\n2013 provides the issue of shares through preferential allotment. This article\nwill provide information regarding what is the procedure and forms involved in\npreferential allotment. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3aa6a4d3999\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3aa6a4d3999\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#Understanding_Preferential_Allotment\" title=\"Understanding\nPreferential Allotment\">Understanding\nPreferential Allotment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#Persons_not_Eligible_to_Issue_Preferential_Allotment_of_Shares\" title=\"Persons not Eligible\nto Issue Preferential Allotment of Shares\">Persons not Eligible\nto Issue Preferential Allotment of Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#What_are_the_Reasons_to_Issue_Shares_through_Preferential_Allotment\" title=\"What are the\nReasons to Issue Shares through Preferential Allotment?\">What are the\nReasons to Issue Shares through Preferential Allotment?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#Procedure_for_Preferential_Allotment\" title=\"Procedure for\nPreferential Allotment \">Procedure for\nPreferential Allotment <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#Forms_Involved_in_Preferential_Allotment\" title=\"Forms Involved\nin Preferential Allotment\">Forms Involved\nin Preferential Allotment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/procedure-and-forms-involved-in-preferential-allotment\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_Preferential_Allotment\"><\/span>Understanding\nPreferential Allotment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A preferential\nallotment means issue of shares or convertible securities by unlisted or listed\ncompanies to any group of persons or select person on a preferential basis and\ndoes not include shares or other securities offered through rights issue,\npublic issue, employee stock option scheme, issue of sweat equity shares,\nemployee stock purchase scheme, bonus shares or depository receipts issued in a\ncountry outside India or foreign securities. <\/p>\n\n\n\n<p>According to the\nCompanies Act shares are covered under it. The expression other securities or\nshares means equity shares, fully or party convertible debentures or any other\nsecurities which can be converted into or exchanged with equity shares at later\nstage. <\/p>\n\n\n\n<p>Section 62 along with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 and Section 42 along with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 lays down the procedure and provisions for preferential allotment of shares. <\/p>\n\n\n\n<p>Any company can\nissue preferential allotment of shares such as Private company or Public\nCompany, listed or unlisted or Section 8 companies and etc. <\/p>\n\n\n\n<p>Preferential allotment of shares (PAS) is issued by the companies as it is the fastest way to increase the share capital and bring capital in the company. Also, when capital is raised by the company in this way, it becomes the asset of the company and results in increasing the existing share capital. The allottees become the members of the company and such fund is considered as owned fund.<\/p>\n\n\n\n<p><strong>Also, Read:<\/strong> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/advantages-and-disadvantages-of-preferential-allotment\/\">Advantages and Disadvantages of Preferential Allotment<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Persons_not_Eligible_to_Issue_Preferential_Allotment_of_Shares\"><\/span>Persons not Eligible\nto Issue Preferential Allotment of Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Persons who are\nnot eligible to issue preferential allotment of shares are:<\/p>\n\n\n\n<ul><li>A person belonging to a group or promoter who\nhas sold his equity shares during 6 months preceding the relevant date. <\/li><li>A person belonging to a group or promoter who\nhas earlier applied for a warrant but failed to exercise it. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Reasons_to_Issue_Shares_through_Preferential_Allotment\"><\/span>What are the\nReasons to Issue Shares through Preferential Allotment?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Some of the\nreasons to issue shares through preferential allotment are as follows:<\/p>\n\n\n\n<ul><li>To provide opportunity to those shareholders who\nwere unable to purchase shares during the initial public offerings.<\/li><li>To help the companies to raise funds.<\/li><li>To support or assist the company in securing\nequity participation.<\/li><li>To help the company to increase its share\ncapital.<\/li><li>To provide possibility to the financial\ninstitutions, promoters, suppliers, venture capitalists or buyers to increase\ntheir stake in the company.<\/li><li>Contributing towards the development of economy\nby increasing the flow of capital in it.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Procedure_for_Preferential_Allotment\"><\/span>Procedure for\nPreferential Allotment <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>A notice is required to be sent to convene Board Meeting at least <strong><em>7 days<\/em><\/strong> before the meeting. <\/li><li>Convene Board Meeting and consider the below given matters<strong>:<\/strong><\/li><\/ul>\n\n\n\n<ol><li>Consider the valuation report as received.<\/li><li>Deciding the list of allottees (not to exceed 50\nat a time and 200 aggregate in the financial year excluding the qualified\ninstitutional buyer.<\/li><li>Fix the time, venue and date of extra ordinary\ngeneral meeting.<\/li><li>Finalization of draft offer letter in the form <strong><em>PAS-\n4<\/em><\/strong>.<\/li><li>Finalization of notice for extra ordinary\ngeneral meeting along with explanatory statement as stated in the law.<\/li><li>Decide the offer period.<\/li><li>Open a separate bank account to receive money in\na scheduled bank.<\/li><\/ol>\n\n\n\n<ul><li>Convene extra ordinary general meeting and passing of resolution for allotment. <\/li><li>File <strong><em>MGT- 14<\/em><\/strong> and the private placement offer letter, that is, <strong><em>PAS- 4<\/em><\/strong> cum application shall be dispatched to the proposed allottees along with the following attachments<strong>:<\/strong><\/li><\/ul>\n\n\n\n<ol><li>A certified true copy of the special resolution.\n<\/li><li>Explanatory statement.<\/li><\/ol>\n\n\n\n<ul><li>Dispatch the private placement offer letter cum application to the proposed allottees within <strong><em>13 days <\/em><\/strong>within an electronic form or in writing. <\/li><li>The shares shall be subscribed by the proposed allottees in the private placement offer letter cm application along with the subscription money paid either by demand draft, by cheque or other banking channel but not through cash. <\/li><li>The money received as it is shall be deposited in a separate bank account. <\/li><li>Within the <strong><em>60 days<\/em><\/strong> of receipt of money, convene Board Meeting for allotment of shares. <\/li><li>Within the <strong><em>15 days<\/em><\/strong> of allotment of shares file <strong><em>PAS- 3<\/em><\/strong>.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Forms_Involved_in_Preferential_Allotment\"><\/span>Forms Involved\nin Preferential Allotment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>In case of E-form <em>MGT-14<\/em>, following attachments are required:<\/strong><\/p>\n\n\n\n<ul><li>Certified true copy of special resolution.<\/li><li>Explanatory statement along with notice of\ngeneral meeting. <\/li><li>Minutes of general meeting. <\/li><\/ul>\n\n\n\n<p><strong>In case of E-form <em>PAS- 3<\/em>, following attachments are required:<\/strong><\/p>\n\n\n\n<ul><li>List of Allottees. <\/li><li>Certified true copy of the special resolution.<\/li><li>Explanatory statement.<\/li><li>Valuation report. <\/li><li>In case the shares are issued for consideration\nother than cash then a copy of contract. <\/li><li>Complete copy of private placement offers and\nacceptances in Form <strong><em>PAS- 5<\/em><\/strong>. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The section 62 and section 42 of the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\">Companies Act, 2013<\/a> comes into effect for the issue of shares through preferential allotment. A person holding the preferential shares has the right to be paid from the assets of the company before common stockholders, if the company goes into bankruptcy. The procedure and forms involved in preferential allotment is discussed above in the article. Through the preferential allotment of shares the company can issue various types of shares and securities such as issuance of fully or partly convertible debentures, issuance of equity shares and issuance of any other securities which are convertible into equity shares.<\/p>\n\n\n\n<p>There must be an authority in Articles of Association (AOA) of the company to issue shares and securities though Preferential allotment of shares (PAS). If such power is not there then the clause of AOA is required to be amended to insert power to PAS.<\/p>\n\n\n\n<p><strong>Also, Read:<\/strong> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/articles-of-association-aoa-and-its-importance\/\">Articles of Association (AOA) and Its Importance for the Company<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Companies Act, 2013, allows the company to raise funds via preferential allotment, sweat equity shares, employee stock option plan and right issue. When the shares are issued through preferential allotment, it helps the company to raise the capital much quickly. Section 62 i.e. Allotment of Shares and Section 42 i.e. Allotment of Securities of [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":2201,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[370,64],"tags":[507],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2200"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=2200"}],"version-history":[{"count":7,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2200\/revisions"}],"predecessor-version":[{"id":3401,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/2200\/revisions\/3401"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/2201"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=2200"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=2200"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=2200"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}