Difference Between Right Issue, Private Placement & Preferential Allotment
Sr. No |
Basis of Difference |
Right Issue |
Private Issue |
Preferential Allotment |
| 1 | Applicable provisions under Companies Act, 2013 | Section 62(1)(a) read with Rules | Section 42 read with rule 14 Companies (Prospectus and allotment of securities) Rules,2014 | Section 62(1)(c ) read with rules 13 of Companies (share Capital and debentures)Rules,2014 and Section 42 read with rule 14 Companies (Prospectus and allotment of securities) Rules,2014 |
| 2 | Type of Security | Only Shares can issue. (Equity and Preference) | Any security can issue. (Equity, Preference Debenture etc.) | Only shares can issue (Equity and Preference) |
| 3 | Eligible for Offer | Issue of shares to existing Equity shareholder in proportion to their existing shareholding | Offer of shares to Investors or any selected group of persons or any outsider (other than by way of public offer) Invitation in one go max- 50 Persons Max during year- 200 persons |
Issue of shares to Both Existing Shareholders and/or outsiders. |
| 4 | Approval Required | Approval of Board of Director through Board Resolution required. | Board & Shareholder approval *(General Meeting) |
Board & Shareholder approval *(General Meeting) |
| 5 | Offer period | Minimum Period-15 days Maximum Period -30 days (however in case of private company if consent from 90% of the shareholder then the offer period can be less then as defined above) * Add 3 additional days extra for dispatch |
No specific minimum offer period defined under this section. However, maximum period of offer can be 365 days. | No specific minimum offer period defined under this section. However, maximum period of offer can be 365 days. |
| 6 | Format of offer Letter | No specific format | PAS-4(offer Letter) PAS-5(Complete record) |
PAS-4(offer Letter) PAS-5(Complete record) *No such Format in case of offer only to existing members. |
| 7 | Forms to be filled | 1.PAS-3(within 30 days from allotment) PAS-3 needs to file within 30 days of passing of board resolution for allotment of shares. |
1. MGT-14 (within 30 days passing of special resolution in general meeting) 2. PAS-3(within 15 days of allotment of shares) |
1. MGT-14 (with in 30 days passing of special resolution in general meeting) 2. PAS-3(within 15 days of allotment of shares) |
| 8 | Time period for allotment of securities *otherwise it will be treated as deposit |
Within 60 days for the Date of Receipt of Application Money. | Within 60 days for the Date of Receipt of Application Money. | Within 60 days for the Date of Receipt of Application Money. |
| 9 | Separate Bank Account | No Separate Bank Account Required | Separate Bank account Required | Separate Bank account Required |
| 10 | Fund utilisation | Fund can be utilize any time after receipt of same | Fund can’t be utilise only after filing of PAS-3. | Fund can’t be utilise only after filing of PAS-3. |
| 11 | Valuation Report | Valuation Report is not Mandatory, *Valuation report is mandatory only in case of issue to non- existing non-resident shareholder |
Valuation Report is Mandatory | Valuation Report is Mandatory. |
| 12 | Renounce the offer letter option | Shareholders have rights to Renounce/accept/reject the offer letter *Subject to authorisation in AOA |
No such right available | No such right available |
| 13 | Explanatory Statement | Not applicable because no shareholder approval is required | Notice should contain Explanatory statement as per rule 14(2) of Companies (Prospectus and allotment of securities) Rules,2014 | Notice should contain Explanatory statement according to rule 13 (d) of Companies (share Capital and debentures) Rules, 2014 read with rule 14(2) of Companies (Prospectus and allotment of securities) Rules,2014 |
| 14 | Minimum Subscription or Investment size | No such minimum subscription required | No such minimum subscription required | No such minimum subscription required |
| 15 | Mode of Receipt of Subscription money | Subscription money can be received in cash or through Banking Channel | Subscription money can be received only through Banking Channel | Subscription money can be received in cash or through Banking Channel |
| 16 | Debenture issue | Debenture can’t be issue through right issue of shares | Debenture can be issue through right issue of shares | Debenture can’t be issue through this method |
| 17 | Non-Convertible Preference Shares | can’t be issue through right issue of shares | can be issue through right issue of shares | can’t be issue through this method |
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION
Informative post, thanks..
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