Make a Preferential Allotment explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
To make a preferential allotment, pass a special resolution under Section 62(1)(c), obtain a registered valuer's report, follow the Section 42 private placement route with an offer in Form PAS-4, allot within 12 months, and file Form MGT-14 and Form PAS-3 with the Registrar.
Overview
A preferential allotment issues shares or convertible securities to identified investors on preferential terms — commonly used for bringing in strategic investors, converting loans, or issuing to promoters. It sits at the intersection of Section 62(1)(c) and Section 42.
When It Is Required & Legal Basis
Section 62(1)(c) permits a company to issue further shares to any persons, if authorised by a special resolution, at a price determined by a registered valuer, subject to Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. Where the issue is for cash, the private placement provisions of Section 42 apply simultaneously.
Step-by-Step Process
- Board meeting. Approve the preferential issue, identify allottees, appoint the registered valuer and convene the EGM.
- Valuation. Obtain the valuation report fixing the issue price under Rule 13.
- Special resolution. Pass the special resolution with the disclosures required by Rule 13 (objects, price basis, class of persons, etc.).
- File MGT-14. File Form MGT-14 within 30 days.
- Offer in PAS-4. Issue the private placement offer letter and collect money through banking channels into a separate account.
- Allot & file PAS-3. Allot within 12 months of the resolution and file PAS-3 within 15 days of allotment.
Forms, Attachments & Fees
| Form | Purpose | Timeline |
|---|---|---|
| MGT-14 | Special resolution for preferential allotment | Within 30 days of resolution |
| PAS-4 | Private placement offer letter | Before receiving money |
| PAS-3 | Return of allotment | Within 15 days of allotment |
Attachments: special resolution with Rule 13 explanatory statement, valuation report, board resolution and list of allottees. MCA fee on the capital slab; stamp duty on certificates varies by state.
Timeline & Due Dates
Allotment must be completed within 12 months of the special resolution; beyond that a fresh resolution is needed. MGT-14 within 30 days of the resolution; PAS-3 within 15 days of allotment.
Penalty for Delay / Non-compliance
Breach of Section 42 attracts a penalty up to the amount raised or ₹2 crore (whichever is lower) with mandatory refund plus interest. Late MGT-14/PAS-3 attracts additional filing fees and Section 117 penalties.
Practical Tips
- Ensure the valuation date is close to allotment; a stale valuation invites scrutiny.
- Include all Rule 13 disclosures in the explanatory statement to avoid a defective resolution.
- Track the 12-month allotment window carefully when the raise is staggered.