Right Issue/ Preferential Allotment

Rule 13 Companies (Share Capital and Debentures) Rules, 2014 -

Meaning of Preferential Allotment/Right Issue - 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.
Following Points to be considered while making before making Preferential
Offer:

i) Authorised by its AOA.

ii) Special Resolution is passed.

iii) Securities allotted should be fully paid up.

iv)Need to make certain disclosure in Explanatory Statement.

v) Allotment should be completed within 12 months.

vi) Valuation Report from Registered Valuer.

Private Placement
Private Placement means any offer of securities or invitation to subscribe securities
(equity or securities that convert to equity) to a select group of persons by a company, other
than by way of public offer, through issue of a private placement offer letter. (Section 42 of
Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities)
Rules 2014)
These guidelines are applicable if the offer is made to a person who is currently not an equity
shareholder in the company.

However, the Company has to comply the following mentioned 7 points even in case

of Preferential Allotment.

Following Points to be considered while making Private Placement:

1. Share Application money should be kept in separate bank account.

2. The names of subscribers to issue should be recorded before making invitation to

Subscribe.

3. Allotment should not be made exceeding 200 persons in a FY (excluding QIB or

Employee under ESOPs)

4. Allotment must be made for not less than Rs 20000/ of face value of the securities for

each allotee.

5.Mode of Payment: Share application money should be paid through Cheque or DD

or other Banking Channels.

6. Time period of Allotment: Allotment of securities should be made within 60 days from

receiving the application money. If not able to allot, then repay SAM within 15 days.

7. Default: If default is made in repayment, then pay with interest rate of 12% p.a.

The major difference between Preferential Allotment and Private Placement are: