Procedure for Preferential Allotment of shares.

Section 62 Procedure for Preferential Allotment of shares.

Section 62(1)(c) of the Companies Act 2013 read with Rule 13 of Companies (Share Capital and Debentures) Rules 2014 enables issue of shares to persons other than the existing shareholders/ employees provided if the same is approved by special resolution and subject to the conditions stated in the said Rule 13.

Conditions:

• The securities allotted shall be made fully paid up at the time of their allotment.
• the allotment of securities on a preferential basis made pursuant to the special resolution passed pursuant to sub-rule (2)(b) shall be completed within a period of 12 months from the date of passing of the special resolution.
• If the allotment of securities is not completed within 12 months from the date of passing of the special resolution, another special resolution shall be passed by the company to complete such allotment thereafter.
• the price of the shares or other securities to be issued on a preferential basis, either for cash or for consideration other than cash, shall be determined on the basis of valuation report of a registered valuer;
• when convertible securities are offered on a preferential basis with an option to apply for and get equity shares allotted, the price of the resultant shares shall be determined beforehand on the basis of a valuation report of a registered valuer and also complied with the provisions of section 62 of the Act;
• Where shares or other securities are to be allotted for consideration other than cash, the valuation of such consideration shall be done by a registered valuer who shall submit a valuation report to the company giving justification for the valuation;
• 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) is not applicable, it shall be expensed as provided in the accounting standards.

PROCEDURE FOR ISSUE OF SHARES ON PREFERENTIAL BASIS.

Step 1

Check the Articles of Association of the company whether necessary authority/power is there to issue shares on preferential basis. If there is no such authority/powers then the company has to take steps for alteration of its articles of association in accordance with the provisions of section 14 of the Companies Act, 2013 so as to provide for issue of shares on preferential basis.

Step 2

Issue notice in accordance with the provisions of section 173(3) of the Companies Act, 2013, (not less than 7 days in writing) for convening a meeting of the Board of Directors.

Step 3

Hold Board Meeting

Hold and convene Board Meeting for the following purpose:

• In-principal approval for issue of shares on preferential basis
• To fix date, time and venue for holding Extra-Ordinary General Meeting (EGM) to get approval of shareholders by way of ordinary resolution for increase in authorized share capital.
• To approve notice of EGM along with explanatory statement.
• To authorize any Director or Secretary to issue notice of EGM.

Note: The Company shall make the following disclosures in the explanatory statement to be annexed to the notice of the general meeting.

• The objects of the issue;
• The total number of shares or other securities to be issued;
• The price or price band at/within which the allotment is proposed;
• Basis on which the price has been arrived at along with report of the registered valuer;
• Relevant date with reference to which the price has been arrived at;
• The class or classes of persons to whom the allotment is proposed to be made;
• Intention of promoters, directors or key managerial personnel to subscribe to the offer;
• The proposed time within which the allotment shall be completed;
• The names of the proposed allottees and the percentage of post preferential offer capital that may be held by them;
• The change in control, if any, in the company that would occur consequent to the preferential offer;
• The 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;
• The justification for the allotment proposed to be made for consideration other than cash together with valuation report of the registered valuer.
• The pre issue and post issue shareholding pattern of the company in the prescribed format.

Step 4

Issue notice of not less than twenty-one (21) clear days for convening General Meeting to every member of the company, Directors and auditor.

Step 5

In case of listed company, send three copies of the notice to the STOCK EXCHANGES on which the securities of the company are listed.

Step 6

General Meeting

Hold GM and pass the special resolution.

Step 7

In case of listed company, send copy of the proceedings of the general meeting to the STOCK EXCHANGE with which the company is listed.

Step 8

E-form Filing

File Form MGT-14 (for tutorial of form click here) within 30 days of passing of Resolution along with

·        Notice of EGM.

·        Copy of Special Resolution.

Step 9

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.

Step 10

Issue notice in accordance with the provisions of section 173(3) of the Companies Act, 2013, (not less than 7 days in writing) for convening a meeting of the Board of Directors.

Step 11

Hold Board meeting

Hold and convene Board Meeting within 12 months and make allotment of shares.

Step 12

E-form Filing

File return of allotment in Form PAS-3 (for tutorial of form click here) with Registrar of Companies within 30 days of Board Meeting with the following attachment:

·        List of allottees, separate list for each allotment.

·        Copy of Board resolution approving allotment of shares.

·     Valuation Report from the registered valuer is mandatory in case obtained from valuer.

Step 13

Pay Stamp duty on issue of shares as per relevant State Stamp Act.

Step 14

Issue Share Certificates to the allottees within a period of 2 months from the date of allotment.

Step 15

 Update Register of Members in Form MGT-1.

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