Key Points for Preferential Allotment of Shares by Unlisted Companies Under Section 62

Preferential-Allotment-Shares-Unlisted-Companies

Key Points for Preferential Allotment of Shares by Unlisted Companies Under Section 62

Applicable Rules and Sections of Companies Act, 2013
Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 lays down conditions to be complied with for preferential offer of shares or other securities by unlisted companies.



Such issue on preferential basis should also comply with conditions laid down in section 62 and 42 of the Companies Act, 2013.

Special Resolution
For the purpose of clause (c) of sub-section (1) of section 62, if authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or Clause (b) of sub-section (1) of section 62.

Conditions to be fulfilled for preferential offer
1.      The issue is authorized by its articles of association
2.      The issue has been authorized by a special resolution of the members
3.     Securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment
4.    The company shall make the specified disclosures in the explanatory statement to be annexed to the notice of the general meeting.

Issue Price
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.

Allotment for non-cash consideration
Where share 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.

Allotment to be made within 12 months of passing the special resolution
1.  The allotment of securities on a preferential basis made pursuant to the special resolution passed shall be completed within a period of 12 months from the date of passing of the special resolution.
2.   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 for the company to complete such allotment thereafter.   


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