Procedure of preferential allotment of Shares

The procedure of preferential allotment of shares is different in the sense that the allotment is done to pre-identified people and mostly it is the group of investors who may be or may not be the share holders of the company. Most of the times, preferential allotment of shares is for those who are interested in owning stake in the private limited company.

Here’s the procedure for preferential allotment of shares

1. When the company wants to increase the share capital, it would propose for further issue of shares to the existing share holders. It may even be offered to the employees of the company as stock option. It can be to any other set of investors too who may not be the employees or share holders of the company.
2. The offer would be made via notice and the set time period would be between 15 days to 30 days. If the offer is not accepted within this time period then it would be considered as declined.
3. The notice for the offer of shares in case of the preferential allotment should be sent via registered post or speed post. It can even go through the email mode. The offer should reach the receivers before 3 days of the opening of the issue.
4. When the offer is made by the company that is listed on the stock exchange then the provisions of SEBI would work on that. If the company is not listed on the stock exchange then the provisions would be true based on what is mentioned in the articles of association.
5. In order to allot the shares the special resolution needs to be passed and the allotment should be done within 12 months of the resolution. If that does not happen then again a resolution should be passed at the board meeting. The valuation report plays an important role and that would determine the value of the shares. If the consideration is not in the form of cash then it would be treated in different way in the accounting books.