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    Private Placement and Preferential Allotment

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    Aparajita Marwah
    Private placement and preferential allotment are methods for companies to raise funds from private investors or select persons. Private placement involves selling securities through a private placement offer letter to investors such as mutual funds. Preferential allotment allows companies to issue shares or convertible securities to existing members, employees or outsiders. Some key differences are that private placement securities are defined in the Securities Contracts Regulation Act while preferential allotment covers equity shares or convertible debentures. Private placement can be made to no more than 200 persons in a year whereas preferential allotment is not limited. Private placement requires funds to be received through banking channels only but preferential allotment can be for cash or consideration other than cash.

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    Private Placement and Preferential Allotment

    Uploaded by

    Aparajita Marwah
    25 views2 pages
    Private placement and preferential allotment are methods for companies to raise funds from private investors or select persons. Private placement involves selling securities through a private placement offer letter to investors such as mutual funds. Preferential allotment allows companies to issue shares or convertible securities to existing members, employees or outsiders. Some key differences are that private placement securities are defined in the Securities Contracts Regulation Act while preferential allotment covers equity shares or convertible debentures. Private placement can be made to no more than 200 persons in a year whereas preferential allotment is not limited. Private placement requires funds to be received through banking channels only but preferential allotment can be for cash or consideration other than cash.

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    Private placement and preferential allotment are methods for companies to raise funds from private investors or select persons. Private placement involves selling securities through a private placement offer letter to investors such as mutual funds. Preferential allotment allows companies to issue shares or convertible securities to existing members, employees or outsiders. Some key differences are that private placement securities are defined in the Securities Contracts Regulation Act while preferential allotment covers equity shares or convertible debentures. Private placement can be made to no more than 200 persons in a year whereas preferential allotment is not limited. Private placement requires funds to be received through banking channels only but preferential allotment can be for cash or consideration other than cash.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    25 views2 pages

    Private Placement and Preferential Allotment

    Uploaded by

    Aparajita Marwah
    Private placement and preferential allotment are methods for companies to raise funds from private investors or select persons. Private placement involves selling securities through a private placement offer letter to investors such as mutual funds. Preferential allotment allows companies to issue shares or convertible securities to existing members, employees or outsiders. Some key differences are that private placement securities are defined in the Securities Contracts Regulation Act while preferential allotment covers equity shares or convertible debentures. Private placement can be made to no more than 200 persons in a year whereas preferential allotment is not limited. Private placement requires funds to be received through banking channels only but preferential allotment can be for cash or consideration other than cash.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Private Placement and Preferential Allotment

    Concept
    • Private Placement:
    The private placement implies selling of securities to private investors, with the aim
    of raising funds for the company, by making an offer to selected persons such as
    mutual funds or insurance companies by issuing a Private Placement Offer Letter and
    satisfying the conditions specified therein (S. 42, CA, 2013)
    • Preferential Allotment:
    Preferential Allotment is used to mean the issue of specified securities, i.e. equity
    shares or convertible securities, by a company to any select person or group of
    persons, on preferential basis, as per S. 62(1)(c) of CA, 2013.

    Securities
    • Private Placement:
    Securities (as defined under Section 2(81) of Companies Act, 2013) which says
    “Securities means the Securities defined in clause (h) of Section 2(81) of Securities
    Contracts (Regulation) Act, 1956.
    • Preferential Allotment:
    the expression, “shares or other securities” means equity shares, fully convertible
    debentures, partly convertible debentures or any other securities, which would be
    convertible into or exchanged with equity shares at a later date. [Rule 13(1)
    Companies (Share Capital and Debentures) Rules, 2014]

    Allottees
    • Private Placement:
    To be made only to a select group of persons as identified by the Board, whose
    number not to exceed 200 in aggregate during a Financial Year [Rule 14 (2),
    Companies (Prospectus and Allotment of Securities) Rules, 2014]
    • Preferential Allotment:
    Can be issued to existing members, employees, or outsiders too, and any person
    mentioned in clause (a) or clause (b) of sub-section (1) of section 62, CA, 2013.

    Offer Document
    • Private Placement:
    Prescribed Document i.e. Private Placement Offer Letter (PAS 4)
    • Preferential Allotment:
    No prescribed format

    Consideration
    • Private Placement:
    All monies payable shall be paid through cheque or demand draft or other banking
    channels but not by cash. {S.42(5) CA, 2013}
    • Preferential Allotment:
    Can be issued for cash or for consideration other than cash. [Rule 13(2)(g) Companies
    (Share Capital and Debentures) Rules, 2014].

    1
    Authorisation by AOA
    • Private Placement:
    No authorization needed.
    • Preferential Allotment:
    Need to be authorized by AOA [Rule 13(2)(a) Companies (Share Capital and
    Debentures) Rules, 2014]

    Allotment
    • Private Placement:
    Within 60 Days of receipt of Application money. {S.42(6) CA, 2013}
    • Preferential Allotment:
    Allotment shall be made within 12 months of passing the Special Resolution. [Rule
    13(2)(e) Companies (Share Capital and Debentures) Rules, 2014]

    Status of PP vis a vis PA


    Rule 13(1), Companies (Share Capital and Debentures) Rules, 2014 provides that any
    issue on preferential basis should also comply with conditions laid down in section 42
    of the Companies Act, 2013, i.e. preferential allotment has to comply with provisions
    for Private Placement as well.
    This indicates that S.42 is more general in nature when compared to S.62(1)(c) which
    provides for a specific type of allotment of equity shares or or convertible securities.
    Procedural compliances under both S.62(1)(c) and S.42 have to be adhered to.

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