Issue of shares by Private placement (includes Preferential Issue)
May 30, 2014 by CS Samrish Bhanja
Preferential Issue – Procedure
(updated upto 18th March, 2015)
Compiled from provisions of Section 42 and Section 62 of the Companies Act, 2013 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014.
a) Shareholders meeting
1. The issue has been authorized by a special resolution of the members (Sec 62(1)(c)). File form MGT-14 with ROC with copy of special resolution within 30 days.
2. The company shall make various disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act as stated in Rule 13 of Companies (Share Capital and Debentures) Rules, 2014. Among various details, the names of the proposed allottees, the change in control and the pre & post shareholding pattern, shall also be disclosed.
3. The allotment of securities on a preferential basis made pursuant to the special resolution shall be completed within a period of twelve months from the date of passing of the special resolution.
4. No fresh offer or invitation under this section 42(3) of the Companies Act, 2013 shall be made unless the allotment with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company
b) Registered valuer
5. The price of the shares or other securities to be issued on a preferential basis shall be determined on the basis of valuation report of a registered valuer;
However, in case of preferential issue by a listed company, the price of the shares to be issued is not required to be determined by the report of a registered valuer.
c) Offer Document (PAS-4) and complete record (PAS-5)
6. Issue of a private placement offer letter. (Sec 42(1)). For the purposes of sub-section (1) of Section 42, a company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter in Form PAS-4.
7. A private placement 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. (Section 42(7) read with Rule 14(1)(b) of Chapter III)
8. The company shall maintain a complete record of private placement offers in Form PAS-5.
9. A copy of such record (PAS-5) along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar within 30 days of circulation date. Date of private placement offer letter shall be considered as circulation date.
However MCA gave a clarification dated 18.03.2015 which states that in case of any preferential offer to one or more existing members, there is no requirement to make an offer in Form PAS 4 neither is a requirement to file it with the RoC / SEBI along with record of Private Placement i.e PAS-5.
d) Share Application Money
10. A company making an offer of securities shall allot its securities within sixty days from the date of receipt of the application money for such securities. If not able to allot, return application money within 15 days failing which interest shall be payable by the company @ 12% p.a.
11. Monies received on application under this section shall be kept in a separate bank account in a scheduled bank.
12. The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received. (Rule 14(2)(d) of Companies (Prospectus and Allotment of Securities) Rules, 2014)
13. The securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment.
e) Return of Allotment
14. A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS-3(along with a copy of valuation report).
If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty (Sec 42(10)).