{"id":30729,"date":"2020-04-12T15:25:08","date_gmt":"2020-04-12T09:55:08","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30729"},"modified":"2022-09-13T14:16:59","modified_gmt":"2022-09-13T08:46:59","slug":"procedure-for-issue-of-shares-on-preferential-basis-under-companies-act","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/procedure-for-issue-of-shares-on-preferential-basis-under-companies-act\/","title":{"rendered":"Procedure for Issue of Shares on Preferential Basis Under Companies Act"},"content":{"rendered":"<p class=\"has-drop-cap\">According to the Companies <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Amendment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An &amp;quot;amendment&amp;quot; refers to the formal change or correction of a legal document, often involving additions, variations, or deletions to address irregularities or clarify points in an agreement.(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/amendment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Amendment<\/a> Act 2017, a Company can\nraise funds or Capital mainly in three ways: (1) Private Placement\/\nPreferential <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Allotment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An allotment is the systematic distribution of business resources, often pertaining to the distribution of shares during initial public offerings (IPOs) to underwriting firms or to new and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/allotment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Allotment<\/a> (2) Right Issue (3) Bonus Issue. According to the\nprovision of <strong><em>Section-62 subsection (1) clause (a)<\/em><\/strong> at any time, a company\nhaving a share capital proposes can increase its subscribed capital by issue of\nshares. Such shares are offered to people who, at the time of the offering, are\nthe holders of the equity shares of the company in any proportion. The\npreferential allotment of paid-up share capital is issued by sending the letter\nof offer for those shares before its issuance.&nbsp;&nbsp;\n<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Applicability of Provisions<\/h2>\n\n\n\n<ul><li>Preferential <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>Basis<\/a> Allotment means an issue of\nshares by any company under <strong><em>Section 62 (1) (c)<\/em><\/strong> of (Share Capital\nand Debenture) of the Companies Amendment Act, 2017.<\/li><li><strong><em>SEBI<\/em><\/strong> (Issue of Capital and\nDisclosure Requirements) Regulations 2009<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Conditions while Issuing Shares by a Company&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/h2>\n\n\n\n<ul><li>Approval shall be taken from shareholders though\nAGM or EGM or Postal Ballot<\/li><li>Ensure Issue of shares has to be authorized by\nAOA (Article of Association)<\/li><li>A list of persons is prepared not exceeding 200\nto whom the offer has to be made and obtain the consent letter from the\nproposed allottees prior to the board meeting to consider the Preferential\nissue.<\/li><li>Separate Bank is opened through which subscribers\ncan subscribe to its share and receive money for the allotment or return.<\/li><li>The company cannot issue shares to any person\nwho has sold any equity shares during the six months preceding the relevant\ndate<\/li><li>The value of an offer or an invitation must not\nbe less than Rs. 20,000 of the face value of the Security.<\/li><li>For the Listed company, existing proposed\nallottees shall have shares in dematerialised form.<\/li><li>The fully paid up securities have to be issued.<\/li><li>The preferential issue shall not be done unless\nit is in compliance with the conditions of continuous listing and also all the\nproposed allottees must have a PAN<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Ineligible person for preferential issue of shares<\/h2>\n\n\n\n<ul><li>The Person who belongs to a promoter or group\nwho has sold his equity shares during six months preceding the relevant date<\/li><li>The Person who belongs to the promoter or group\nhas earlier applied for a warrant but failed to exercise it.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Procedure for Right Issue of Shares Under Section 62 by a Company<\/h2>\n\n\n\n<p>The proposed issue of shares is made by the company when the\ntotal <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Authorized Share Capital&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In the realm of business and finance, understanding the concept of authorized share capital is crucial. Whether you&amp;#039;re a seasoned entrepreneur, a start-up enthusiast, or simply someone(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/authorized-share-capital\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>authorized share capital<\/a> of a company gets decreased. Therefore steps\nmust be taken to increase the authorized share capital of the company. The\nbelow procedure is required to be followed:<\/p>\n\n\n\n<ul><li>Under <strong><em>Section- 173(3)<\/em><\/strong>, the notice is\nissued not less than 7days to conduct a Board meeting. In the case of urgent\nbusiness, the director of the company in writing can call a Board meeting to\nconsider the proposal for the rights issue of shares and approving the same\nissue price of shares. <\/li><li>The meeting held by the Board of directors can\ndecide the following agendas:<\/li><li>The Board Resolution can pass the necessary\nnumber of shares to be offered on issue rice, right basis, and the list of\nequity shareholders to whom the issue of shares is to be offered. <\/li><li>Approval of draft letter of offer<\/li><li>Approval on share application form and\nrenunciation letter<\/li><li>The director signs and file the form with ROC\n(Registrar of Company) and perform all such deeds and acts which is decided in\nthe Board meeting<\/li><li>The letter of offer is sent to the members by\nthe officer as appointed on the Board meeting, and it shall specify the\nfollowing:<\/li><li>Number of shares that are offered<\/li><li>Offer period of right issue of shares ( i.e.,\nwithin 15 to 30 days the offer letter is dispatched and must reach to members\nat least 3 days before the opening of the issue) <strong><em>Section-62 (1)(a)<\/em><\/strong><\/li><li>The letter of offer is dispatched to all\nexisting equity shareholders accompanied by the draft of the renunciation\nletter and application form.<\/li><li>If the offer is not accepted with the offer\nperiod as mentioned above, then it shall be deemed to be rejected or declined. <\/li><li>Subject to condition mention in AOA, the members\nto whom shares are offered may renounce the shares offered to him in favor of\nany other person.<\/li><li>The preparation of the circular draft minutes\nwithin 15 days from the date of the conclusion of the Board meeting and send to\nall Directors. The Board Minutes is for the comments received from the\ndirectors.<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/procedure-for-shares-issue-through-right-issue\/\" target=\"_blank\" rel=\"noopener noreferrer\">Procedure for Shares issue through Right Issue<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">In the case of the public company <\/h3>\n\n\n\n<ul><li>The certified copy of Board resolution filed\nwith Registrar for the issue of shares on right basis in <strong><em>E-Form No. MGT. 14 <\/em><\/strong>as per\nthe provisions of <strong><em>Section- 179(3) <\/em><\/strong>along with the fees as mentioned under\nCompanies (Registration Offices and Fees) Rules 2014, within 30 days of passing\nof the Board meeting resolution. <\/li><li>After the expiry of specified time or by earlier\nintimation by a person if he declines the offer of issuance of shares, then the\nBoard of Directors may dispose of the offer in a manner which is not\ndisadvantageous to shareholders of a company as per <strong><em>Section-62(1)(a)(iii)<\/em><\/strong>.<\/li><li>On acceptance of the offer by the person, a\nnotice is issued not less than 7days after the expiry of the offer period in\nwriting to every director to conduct a Board meeting for the consideration of a\nproposal for allotment of shares as per <strong><em>Section- 173(3)<\/em><\/strong>.<\/li><li>The Board of Directors hold a meeting to pass\nthe necessary Board resolution for approving the allotment of shares.<\/li><li>The directors then file the relevant form with\nROC and perform all such deed and acts as decided in the Board meeting<\/li><li>The Board meeting also consider the manner of\ndisposal of unsubscribed shares, if any<\/li><li>&nbsp;The\npreparation of the circular draft minutes within 15 days from the date of the conclusion\nof the Board meeting and send to all Directors. The Board Minutes is for the\ncomments received from the directors.<\/li><li>The filing of the return of allotment is made in\n<strong><em>E-Form\nNo. PAS-3<\/em><\/strong> with the Registrar along with the fees as mentioned under\nCompanies (Registration Offices and Fees) Rules 2014 within 30 days of\nallotment of shares <\/li><li>The following attachment is required:<\/li><li>List of allottees with their name, address, occupation,\nand a number of securities. This list is certified by the signatory of the Form\nPAS-3 as being correct and complete as per the records of the company<\/li><li>Copy of approving the allotment of shares by the\nBoard Resolution<\/li><li>Any other attachment if required<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Other key considerations<\/h3>\n\n\n\n<ul><li>In case the shares are held in the Demat form, the company shall intimate the allotment shares details to the depository immediately on allotment of such securities as per Proviso <strong><em>Section 56(4)<\/em><\/strong>.<\/li><li>In case the shares held in physical form, the issue of share certificates in Form No. SH-1 and deliver the share certificates within the duration of two months from the date of allotment as per <strong><em>Section- 56(4) (b)<\/em><\/strong>.<\/li><li>Share certificate that is issued must have the seal of the company, which is signed by two directors and by a secretary who is duly authorized by the Board of directors or committee of Board<\/li><li>The other formalities, such as refund of excess application money, have to be completed.<\/li><li>In the case of <strong><em>One Person Company, <\/em><\/strong>the share certificate is issued under the seal of the company and signed by one director or a person who is authorized by the Board as per <strong><em>Rule-5 (3)<\/em><\/strong> of Companies (Share Capital and Debenture) Rules 2014.<\/li><li>Payment of the requisite stamp duty on the share certificates in accordance with the provisions of the <strong><a href=\"https:\/\/en.wikipedia.org\/wiki\/Indian_Stamp_Act,_1899\">Indian Stamp Act<\/a><\/strong><\/li><li>The necessary entries made in Register of Directors and the Register of Members and on key managerial personnel as per <strong><em>Rule-5 (4)<\/em><\/strong> of Companies (Share Capital and Debenture) Rules 2014.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Conclusions<\/h3>\n\n\n\n<p>\n\nAccording to <strong><em>Section-\n62 (1) (a),<\/em><\/strong> the issue of shares is proposed, to the equity shareholders,\nof the company in proportion to their paid-up share capital. These shares are\noffered on right basis by sending a letter of offer fulfilling the prescribed\nconditions. The AOA provides guidance regarding the offer of rights issue of\nshares and the person concerned who wants to renounce his shares or offer it to\nany other person. The Board Resolution for considering the issue of shares on\nright basis cannot be passed by circulation as per <strong><em>Section- 179(3) (c)<\/em><\/strong>. The\nmeeting is conducted to draw the final conclusion. \n\n\n\n<\/p>\n\n\n\n<div class=\"read\"><p><b>See Our Recommendation:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/how-to-issue-shares-through-esop\/\" target=\"_blank\" rel=\"noopener noreferrer\">Procedure to Issue Shares through ESOP<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>According to the Companies Amendment Act 2017, a Company can raise funds or Capital mainly in three ways: (1) Private Placement\/ Preferential Allotment (2) Right Issue (3) Bonus Issue. According to the provision of Section-62 subsection (1) clause (a) at any time, a company having a share capital proposes can increase its subscribed capital by [&hellip;]<\/p>\n","protected":false},"author":34,"featured_media":30730,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1431],"tags":[2897],"acf":{"service_id":"215"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Procedure for Issue of Shares on Preferential Basis under Companies Act-Enterslice<\/title>\n<meta name=\"description\" content=\"Section-62 subsection (1) clause (a) at any time, a company having a share capital proposes can increase its subscribed capital by issue of shares.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/procedure-for-issue-of-shares-on-preferential-basis-under-companies-act\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Procedure for Issue of Shares on Preferential Basis under Companies Act-Enterslice\" \/>\n<meta property=\"og:description\" content=\"Section-62 subsection (1) clause (a) at any time, a company having a share capital proposes can increase its subscribed capital by issue of shares.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/procedure-for-issue-of-shares-on-preferential-basis-under-companies-act\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2020-04-12T09:55:08+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-09-13T08:46:59+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Procedure-for-Issue-of-Shares-on-Preferential-Basis-under-Companies-Act.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"670\" \/>\n\t<meta property=\"og:image:height\" content=\"352\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Soumya Bajpai","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/02\/Soumya-Bajpai.jpg","authorDescription":"Soumya has done LLB (Hons) and has a 2+years experience in writing. 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