{"id":7973,"date":"2019-12-26T13:07:48","date_gmt":"2019-12-26T07:37:48","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=7973"},"modified":"2020-04-16T15:51:53","modified_gmt":"2020-04-16T10:21:53","slug":"what-is-the-difference-between-right-issue-and-preferential-allotment","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/","title":{"rendered":"What is the Difference Between Right Issue and Preferential Allotment?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">For a better understanding of the difference between Right Issue and Preferential Allotment, one should know about these two kinds of share issues in detail. The main difference between Right Issue and Preferential Allotment is that the Rights Issue is an offer to existing shareholders. In contrast, <a href=\"https:\/\/swaritadvisors.com\/preferential-allotment\"><strong><em>Preferential Allotment<\/em><\/strong><\/a> is the offer under which shares are allotted to a specified group of people.<\/p>\n\n\n\n<p>Let us discuss in detail each kind of share issue as per Companies Act 2013 before learning in brief about the difference between <a href=\"https:\/\/swaritadvisors.com\/rights-issue\"><strong><em>Right Issue<\/em><\/strong><\/a> and Preferential Allotment henceforth.<\/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-6a5498673eac1\" 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-6a5498673eac1\"  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\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Understanding_about_Right_Issue_and_Preferential_Allotment\" title=\"Understanding about Right Issue and Preferential Allotment\">Understanding about Right Issue and Preferential Allotment<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Right_Issue\" title=\"Right Issue: \">Right Issue: <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Preferential_Allotment\" title=\"Preferential Allotment: \">Preferential Allotment: <\/a><\/li><\/ul><\/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\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Benefits_of_Preferential_Allotment_Right_Issue\" title=\"Benefits of Preferential Allotment &amp; Right Issue\">Benefits of Preferential Allotment &amp; Right Issue<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Preferential_Allotment_has_the_following_benefits\" title=\"Preferential Allotment has the following benefits:\">Preferential Allotment has the following benefits:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Right_Issue_is_preferred_for_the_following_reasons\" title=\"Right Issue is preferred for the following reasons:\">Right Issue is preferred for the following reasons:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Step_by_step_procedure_for_Preferential_Allotment\" title=\"Step by step procedure for Preferential Allotment\">Step by step procedure for Preferential Allotment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Step_by_step_procedure_for_Right_Issue\" title=\"Step by step procedure for Right Issue\">Step by step procedure for Right Issue<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Difference_between_the_Right_Issue_and_Preferential_Allotment\" title=\"Difference between the Right Issue and Preferential Allotment\">Difference between the Right Issue and Preferential Allotment<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/learning\/what-is-the-difference-between-right-issue-and-preferential-allotment\/#Final_Thought\" title=\"Final Thought\">Final Thought<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Understanding_about_Right_Issue_and_Preferential_Allotment\"><\/span><strong>Understanding about Right Issue and Preferential Allotment<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Right_Issue\"><\/span><strong>Right Issue: <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It is an offer provided to the existing shareholders in proportion to their shareholding by allowing them to buy additional shares from the company on a discounted price in spite of buying them in the secondary market.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Preferential_Allotment\"><\/span><strong>Preferential Allotment: <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Company offers the shares to a specified group of public on a preferential basis. Preference shareholders are paid first whenever the company declares or pays a dividend. This option facilitates those shareholders who are unable to buy a large chunk of shares due to high-cost availability on the market.&nbsp;<\/p>\n\n\n\n<div class=\"browse\">\n<p>Browse through our articles on services provided at <a href=\"https:\/\/swaritadvisors.com\">Swarit Advisors<\/a>, and just let us know if we can help you with your IPO or Comapny Takeover or SEBI Advisory Services.<\/p>\n<div class=\"browse1\">\n<table class=\"table1\">\n\n<tbody>\n<tr>\n<td><a href=\"https:\/\/swaritadvisors.com\/mergers-and-acquisitions\"><span>Mergers and Acquisitions<<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/buyback-of-shares\"><span>Buyback of Shares<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/merger-and-amalgamation\"><span>Merger and Amalgamation<\/span><\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/swaritadvisors.com\/public-issues\"><span>Public Issues<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/rights-issue\"><span>Rights Issue<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/preferential-allotment\"><span>Preferential Allotment<\/span><\/a><\/td>\n<\/tr>\n<tr>\n<td><a href=\"https:\/\/swaritadvisors.com\/company-takeover\"><span>Company Takeover<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/issue-of-debentures\"><span>Issue of Debentures<\/span><\/a><\/td>\n<td><a href=\"https:\/\/swaritadvisors.com\/insurance-broker-license\"><span>Insurance Broker License<\/span><\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Benefits_of_Preferential_Allotment_Right_Issue\"><\/span><strong>Benefits of Preferential Allotment &amp; Right Issue<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Preferential_Allotment_has_the_following_benefits\"><\/span>Preferential Allotment has the following benefits:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>There is no brokerage cost involved, and the preference shareholders get priority over dividend<\/li><li>Preference shareholders have the right to claim unpaid dividend on succeeding year<\/li><li>The investment made by shareholders through preferential allotment is always safe as they are paid first in case the company goes bankrupt or insolvent.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Right_Issue_is_preferred_for_the_following_reasons\"><\/span>Right Issue is preferred for the following reasons:<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>Company planning to raise fund for its project prefer right issue as it is the fastest method to achieve the objective<\/li><li>Project for which the option of debt funding is not available, the company prefer choosing the <strong><a href=\"https:\/\/en.wikipedia.org\/wiki\/Rights_issue\"><em>rights<\/em><\/a><\/strong> issue to raise capital<\/li><li>To pay off the debt and the company&#8217;s liability, the company usually issues the shares to recover the debt.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Step_by_step_procedure_for_Preferential_Allotment\"><\/span><strong>Step by step procedure for Preferential Allotment<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are the brief procedure for Preferential Allotment:<\/p>\n\n\n\n<ul><li>Convene the Board Meeting by sending 7 days notice and discuss the following agendas such as:<\/li><li>Consideration of valuation report<\/li><li>Finalize the list of allottees not exceeding 200 in a year and 50 at a time<\/li><li>Fix and decide the day, date, time and venue for conducting EGM<\/li><li>Approve the draft of PAS-4 for private placement offer letter<\/li><li>Decide the offer period<\/li><li>Call and hold EGM on a date decided to conduct EGM by sending 21 clear days notice and approve preferential allotment<\/li><li>Within 30 days of conducting EGM, the company shall file MGT-14 with ROC as the mandatory attachment of:<\/li><li>CTC of EGM<\/li><li>PAS-4 for offer letter<\/li><li>Dispatch offer letter within 30 days to proposed allottees as per the list through any mode such as electronic or manual<\/li><li>Money received shall be compulsorily be deposited to separate bank account<\/li><li>Within 60 days of receipt of money, convene another board meeting for the allotment of shares<\/li><li>Within 15 days of allotting the shares, the company shall file PAS-3 to ROC along with following attachments:<\/li><li>List of allottees<\/li><li>Valuation report<\/li><li>CTC of a special resolution passed<\/li><li>A complete record of private placement and acceptance in form PAS-5<\/li><li>Company shall issue the Share Certificate to Allottees within 2 months of allotment.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Step_by_step_procedure_for_Right_Issue\"><\/span><strong>Step by step procedure for Right Issue<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Following are the brief procedure for Right Issue:<\/em><\/p>\n\n\n\n<ul><li>Convene the Board Meeting by sending 7 days&#8217; notice and discuss the following agendas such as fixing the right issue ratio, fixing a record date, the time period for which the offer remains open, etc.<\/li><li>File Board Resolution to ROC through MGT-14 within 30 days of passing resolution<\/li><li>Receive the subscription money from shareholders<\/li><li>Once the offer is concluded, held the board meeting again for allotment of shares and issue of share certificate to the allottees<\/li><li>Within 2 months allot share certificates duly signed and stamped<\/li><li>Within 30 days of concluding allotment, file PAS-3 and board resolution with ROC<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference_between_the_Right_Issue_and_Preferential_Allotment\"><\/span><strong>Difference between the Right Issue and Preferential Allotment<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As we have understood in detail about each kind of issue offer, let\u2019s discuss the following difference between Right Issue and Preferential Allotment:<\/p>\n\n\n\n<table class=\"wp-block-table\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\">\n<p><strong>Right Issue<\/strong><\/p>\n<\/td>\n<td style=\"text-align: center;\">\n<p><strong>Preferential Allotment<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>The right issue is governed through Section 62(1)(a) of Companies Act 2013<\/p>\n<p>&nbsp;<\/p>\n<\/td>\n<td>\n<p>Preferential Allotment is governed through Section 62(1)(c) of Companies Act 2013<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Through this offer, the company issue the shares to existing shareholders in proportion of their holding<\/p>\n<\/td>\n<td>\n<p>Company issue the shares to both existing shareholders and even outsiders<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Only board approval through board meeting is required<\/p>\n<\/td>\n<td>\n<p>Both board resolution and special resolution is needed to approve preferential allotment<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Offer period remains open for the minimum period 15 days and maximum 30 days<\/p>\n<\/td>\n<td>\n<p>No as such specific provision for offer period is specified<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Offer letter can be in any format<\/p>\n<\/td>\n<td>\n<p>Letter offer shall be as per the prescribed format of PAS-4 and PAS-5<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Necessary forms to be filed are PAS-3 with ROC<\/p>\n<\/td>\n<td>\n<p>Necessary forms to be filed with ROC are:<\/p>\n<ul>\n<li>PAS-3<\/li>\n<li>GNL-2<\/li>\n<li>MGT-14<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Company shall allot the shares within 60 days of receipt of application money<\/p>\n<\/td>\n<td>\n<p>The allotment shall be made of the earlier of these two:<\/p>\n<ul>\n<li>12 months of Special Resolution&nbsp;<\/li>\n<li>60 days from receipt of application money<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>No separate bank is needed for the right issue<\/p>\n<\/td>\n<td>\n<p>Separate schedule bank is needed for preferential allotment<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>No need for a valuation report<\/p>\n<\/td>\n<td>\n<p>The valuation report is mandatory in case of preferential allotment<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td>\n<p>Shareholders under this option have right to renounce, reject or approve the offer letter<\/p>\n<\/td>\n<td>\n<p>No such right is provided to shareholders under this offer<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Final_Thought\"><\/span>Final Thought<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><div class=\"shadow4\">Through this, we have discussed in brief about the Rights Issue and Preferential Allotment along with the difference between Right Issue and Preferential Allotment. There are certain other modes of raising capital, such as Private Placement, Debentures issue, etc. To know about the various methods of raising funds in companies, contact us.<\/div><\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/step-by-step-procedure-for-issue-of-shares-by-public-limited-company\/\" target=\"_blank\" rel=\"noopener noreferrer\">Procedure for Issue of Shares by Public Limited Company<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>For a better understanding of the difference between Right Issue and Preferential Allotment, one should know about these two kinds of share issues in detail. The main difference between Right Issue and Preferential Allotment is that the Rights Issue is an offer to existing shareholders. In contrast, Preferential Allotment is the offer under which shares [&hellip;]<\/p>\n","protected":false},"author":11,"featured_media":7951,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[546],"tags":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/7973"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=7973"}],"version-history":[{"count":12,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/7973\/revisions"}],"predecessor-version":[{"id":10063,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/7973\/revisions\/10063"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/7951"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=7973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=7973"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=7973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}