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Urgent please

Pankaj Arora (Learner) (3134 Points)

28 September 2011

Dear All

Our company’s ( pvt. Ltd.) authorized share capital 5 crore and issued capital is just 2 crore now company want to issue preferential allotment..

Please let me know how to issue preferential allotment which forms have to file with ROC and how should I break up of authorized capital into equity share authrozied capital and for preferential allotment.. also let me know which entry I have to passed for issue preferential allotment.

Second query what is difference between preference shares and preferential allotment.?

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13 Replies

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Dear Sir,

First you have to understand the meaning of Preferential Allotment.

Meaning of Preferential Allotment

Preferential Allotment means issue of fresh shares to new people who are not existing shareholders of the company. Preferential allotment has nothing to do with issue of preference shares.

So in your case there is no need to break up authorised capital.

Difference between preference shares and preferential allotment

Under section 81 there is a rule for public company. As per section 81 new shares should first be offered to the existing shareholders of the company. But this section 81 is not applicable to a private company. Hence you can issue your new shares to anyone. So technically if you are issuing new shares in your private company that is not a preferential allotment. It is just a simple allotment of share.

On the other hand preference shares are totally a different kind of shares. Normally in company law there are two kind of share capital:

1. Equity share capital

2. Preference share capital

Kindly read section 85 and 86 of the companies act, 1956.

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RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Procedure for issue of fresh shares in a private company

1. As section 81 is not applicable to your case first convene a board Meeting for allotment of equity shares and pass necessary resolution for allotment.

2. Download form-2 from MCA [ROC] Site www.mca.gov.in

3. Fill form-2 and attach list of allottee with form-2.

4. Get form-2 certified from practicing CS/CA and upload the same on MCA Site.

Return of allotment is required to be submitted u/s 75 by filing form-2 with concerned Registrar of Company.

Sample Board Resolution for allotment

"RESOLVED THAT 15,000 equity shares of Rs. 10/- each in the share capital of the Company be and are hereby allotted to below-mentioned allotees in physical form:

S. No. Name of Allottee No. of Shares

1 Pie Education Limited 15,000

RESOLVED FURTHER that any director of the Company be and is hereby authorized to file the return of allotment pursuant to section 75 of the Companies Act, 1956 with the Registrar of Companies concerned in the prescribed form.”

Pankaj Arora (Learner) (3134 Points)
Replied 28 September 2011

Thanks sir but could your pls clarify me at which time for what instruments we have to show break up of authorized capital ?

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 28 September 2011

Very well explained by Mr. Richank.

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

In your particular case there is no need to breal up authorised capital. So leave it. You can allot new equity shares and increase your paid up capital up to 3 crore.

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Pankaj Arora (Learner) (3134 Points)
Replied 28 September 2011

Yes but I want to know for my knowledge if could tell me pls tell..

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Pankaj Ji,

If in this particular case you want to issue Preference shares than you have to break up your authorised capital in to equity and Preference authorised capital through filing of form 5 with ROC.

Alternatively you may also file form 5 for fresh preference authorised capital keeping your present authorised capital of Rs. 5 crore intact.

In short there should be preference authorised capital before issuing preference shares.

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valji (Accounts manager-MBA) (2150 Points)
Replied 28 September 2011

very nicely expianed mr GARG

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Dear Professionals,

Please take note of the following amendment:

No need to pay stamp duty in Delhi on increase in authorised share capital

ars (CS) (445 Points)
Replied 28 September 2011

Mr. Garg,

Pl. explain what your have quoted as:" Preferential Allotment means issue of fresh shares to new people who are not existing shareholders of the company."

Why not existing members be eligible for pref. allot.?

In my opinon pref. allot. can be done to existing promoters who are members.

Pl. clarify.

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RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

Dear ARS Sir,

In company Law practice issue of new share to existing members is known as Right issue. Reason being section 81 [for public company] contemplates that getting newly issued shares is the first right of existing shareholders.

However existing shareholders may waive their right by passing special resolution under section 81(1A) and same shares may be issued to a new person who is not existing shareholder. This is called preferential issue in legal terms.

Here preferential means preference given to a person who is not an existing shareholder.

LEGAL POSITION IN A PRIVATE COMPANY

As said before section 81 is not applicable to a private company so technically there is no point of discussing or using the term preferential for an issue in a private company.

ars (CS) (445 Points)
Replied 28 September 2011

Mr. Garg,

But don't u think that the pref. in right issue and the pref. allot are two diff. issues.

In the context of the question raised, i was referring to the later.

RG - A Helping Hand (Company Secretary) (13867 Points)
Replied 28 September 2011

IN THE CONTEXT OF A PUBLIC COMPANY

There is nothing like pref in Right issue.

Right issue and preferential issue are two opposite thing.

Under Right issue all the existing members are entitled to the newly offered share in the proportion of shares they are already holding in the company. Hence there cannot be pref in right issue.

Under Preferential Issue new shares are issued to the members other than existing shareholders. [Obviously with the permission of existing shareholders u/s 81(1A)].

In other words without the permission (given by passing SR u/s 81(1A)) of existing shareholders preferential allotment is not possible.