Preferential offer of (Unlisted Public Companies) as per Companies Act 2013

PREFERENTIAL OFFER (UNLISTED PUBLIC COMPANIES) AS PER COMPANIES ACT 2013

I. Definition

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

i) shares or other securities offered through a public issue,

ii) rights issue

iii) employee stock option scheme

iv) employee stock purchase scheme

v) sweat equity shares

vi) bonus shares

vii) depository receipts issued in a country outside India

“shares or other securities” means

i) equity shares,

ii) fully convertible debentures,

iii) partly convertible debentures or

any other securities, which would be convertible into or exchanged with

equity shares at a later date.



II. Provisions for issue of equity shares on preferential basis

A company having a share capital, which proposes to increase its subscribed capital by the issue of further shares, then such company shall offer shares -

to any persons, whether or not those persons including the existing shareholders, who are entitled to rights issue or persons who are entitled to employee stock option scheme as per section 62(1), either for cash or for a consideration other than cash, if the following conditions are satisfied.

i) authorized by a special resolution

ii) price of such shares is determined by the valuation report of a registered valuer

iii) subject to such conditions as may be prescribed in the rules

III. Conditions prescribed by the Rules

Issue of shares on preferential basis should comply with the conditions laid down in section 42 of the Act.

Conditions laid down in section 42

a) The offer or invitation of securities through issue of a private placement offer letter in Form No.3.4, shall be made to such number of persons not exceeding 50 or such higher number as may be prescribed. The draft rules prescribes not more than 200 persons in the aggregate in a financial year.

b) If a company, listed or unlisted, makes an offer to allot or invites subscription of securities to more than the prescribed number of persons, then the same shall be deemed to be an offer to the public.

c) No fresh offer or invitation shall be made unless the allotments with respect to any offer or invitation made earlier have been completed, or withdrawn or abandoned by the company.

d) All monies payable towards subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

e) Allotment has to be made within 60 days from the date of receipt of the application money.

f) If the company is not able to allot the securities within such time, then it shall repay that money within 15 days from the date of completion of 60th day and interest shall be payable @ 12% p.a. from the expiry of the 60th day.

g) Moneys received on application shall be kept in a separate bank account and shall not be utilized for any purpose other than

Ø for adjustment against allotment of securities or

Ø for the repayment of monies where the company is unable to allot securities

h) Offer shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe.

i) Such persons shall receive the offer by name, and that a complete record of such offer shall be kept by the company in such manner as may be prescribed.

j) Complete information about such offer shall be filed with the Registrar within a period of 30 days of circulation of relevant private placement offer letter.

k) Company offering securities shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.

l) Return of allotment of securities shall be field with the Registrar.

IV. Unlisted public companies

1. For unlisted companies, the preferential offer shall be made in accordance with

i. the provisions of the Companies Act 2013 and

ii. Rules made under the Companies Act and

iii. Subject to compliance with the requirements stated in point V hereinbelow.

V. Compliance with regard to preferential offer for unlisted companies

The following are to be complied with in respect of preferential offer for unlisted companies

a) The issue is authorized by its articles of association

b) The issue has been authorized by a special resolution of the members

c) Securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment

d) The following disclosures are to be made in the explanatory statement to be annexed to the notice of the general meeting

i) the objects of the issue;

ii) the total number of shares or other securities to be issued;

iii) the price/price band at/within which the allotment is proposed;

iv) basis on which the price has been arrived at along with report of the registered valuer;

v) relevant date with reference to which the price has been arrived at;

vi) the class or classes of persons to whom the allotment is proposed to be made;

vii) intention of promoters, directors or key managerial personnel to subscribe to the offer;

viii) the proposed time within which the allotment shall be completed;

ix) the names of the proposed allottees and the percentage of post preferential offer capital that may be held by them;

x) change in control, if any, in the company that would occur consequent to the preferential offer;

xi) number of persons to whom allotment on preferential basis have already been made during the year, in terms of number of securities as well as price;

xii) justification for the allotment proposed to be made for consideration other than cash together with valuation report of the registered valuer;

xiii) pre issue and post issue shareholding pattern of the company in the prescribed format.

e) Allotment shall be completed within a period of 12 months from the date of passing the special resolution.

f) If the allotment is not completed within 12 months, then another resolution shall be passed for the company to complete such allotment thereafter.

g) The price of the shares or other securities shall be determined on the basis of valuation of report of a registered valuer.

h) Where the preferential offer of shares is made for a non cash consideration, such non cash consideration shall be treated in the following manner in the books of account of the company:

     i) where the non cash consideration takes the form of a depreciable or amortizable asset, it shall be carried to the balance sheet of the company in accordance with the accounting standards; or

   ii) where clause (i) hereinabove is not applicable, it shall be expensed off as provided in the accounting       

       standards.

VI. Listed companies
For listed companies, the provisions of the Companies Act and the regulations made by the SEBI are to be complied with.

CS Balaji G

Company Secretary