A “Preferential Offer” refers to the issuance of shares or other securities by a company to a selected individual or group on a preferential basis. This does not encompass shares or other securities offered through public issues, rights issues, employee stock option schemes, employee stock purchase schemes, or the issuance of sweat equity shares, bonus shares, depository receipts issued in a country outside India, or foreign securities.

Conditions for issue of shares on Preferential Basis

1. Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 which contains preferential issue of shares is not applicable on listed companies.
2. The issue must be authorized by the articles of association.
3. The issue must be authorized by way of special resolution from the members.
4. The reasons for the issue must be disclosed in explanatory statement which is shall be sent to the members along with the notice.

Completion Period

The allotment of shares or other convertible securities on a preferential basis shall be completed within a period of 12 months from the date of passing of the special resolution.

Pricing of shares or other convertible securities

1. To be determined on the basis of valuation report of the registered valuer.
2. In case of convertible securities:
3. To be determined upfront on the basis of the valuation report of the registered valuer; OR
4. Not earlier than 30 days from the date of eligibility to apply for shares.

Issue of Shares or other convertible securities other than cash

If the preferential offer of share is made for a non-cash consideration, the same shall be treated in the following manner:

• If the non-cash consideration forms part of an asset, it shall be carried to the balance sheet; OR
• If above condition is not applicable, it shall be expensed.

Procedure for preferential issue of shares or other convertible securities

1. Convene Board Meeting to approve:

– Issue of shares or other convertible securities.

– Finalization of persons to whom offer shall be made.

– Draft PAS-4.

– Decide the date, time, and venue of EGM.

– Approve the notice and explanatory statement.

– Opening of a separate bank account.

2. File MGT-14 for Board Resolution.
3. Convene EGM and pass Special resolution.
4. File MGT-14 for Special Resolution.
5. Send PAS-4 form to the identified persons.
6. Prepare a complete record of offer in PAS-5.
7. Open a separate Bank Account.
8. Convene Board meeting for passing resolution for allotting the shares and issuing certificates.
9. File the return in PAS-3 to the ROC.
10. Issue security certificates within the prescribed timeline (within 60 days).
11. Pay stamp duty of the respective state.
12. Update registered of security holders.