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Sakshi Sharda
| Updated: 23 Mar, 2020 | Category: Compliances, Event Based Compliances

Issue of Preference Shares without Public Offer: A Complete Procedure

Issue of Preference Shares

As per Companies Act, 2013, Preference Shares means that part of issued share capital where the preferential shareholder has the preference over the payment of dividend. In case of winding up of Company, the Preferential Shareholders are paid first then other Shareholders in the Company. The Companies Act, 2013, read with the Companies (Share Capital and Debentures) Rules, 2014, provides for the Procedure for Issue of Preference Shares. In the article, we will discuss the procedure followed for Issue of Preference Shares in Company.

What are the Prerequisites and Conditions for Issue of Preference Shares?

At the time of issuing Preference Shares, there are certain prerequisites and conditions which should be followed and complied with true spirit. The conditions which should be followed are as follows:

  • Check for the bifurcation of nominal capital of the Company into Equity Share Capital and Preference Share Capital.
  • Check for the Articles of Association (AoA) that whether the article authorizes for the Issue of Preference Shares.
  • No default in the redemption of the already issued Preference Shares should be there as per Rule 9 of the Companies (Share and Debentures) Rules, 2014.
  • No default in the payment of Dividends should be there as per Rule 9 of the Companies (Share and Debentures) Rules, 2014.   

Whether the Preference Share is issued without making any Public Offer?

SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, (Takeover Code) requires any person who is acquiring shares in Company had to make a mandatory Public Offer if the person requires the share to be acquired in excess than the prescribed limit. Under this Takeover Code, the term ‘Shares’ does not include the preference shares as they have no voting right(expect provided under Companies Act, 2013). Hence, any person acquiring preference shares under this takeover Code is not required to make a mandatory Public offer.

What is the procedure followed for Issue of Preference Shares?   

The procedure followed for Issue of Preference Shares is as follows: Before calling for a Board Meeting look for the Articles of Association (AoA) of Company that whether the Articles authorizes for the Issue of Preference Shares or not. If there is no authorization, then the Articles of Association (AoA) should be altered accordingly tom provide for an Issue of Preference Shares.

procedure followed for Issue of Preference Shares

Call for Board Meeting

Notice for Board Meeting shall be issued to the Directors at least 7 days before the date of the Board Meeting. The agenda of the Board Meeting should be mentioned in the notice.    

Hold Board Meeting

After the notice is served the Board meeting will be convened for the following purposes:

  • To check the quorum of the Board Meeting.
  • To approve the Issuance of Preference Shares.
  • For the approval of “Letter of Offer.”
  • Issue notice of General Meeting.
  • Fix the time, place, date and day of the General Meeting.
  • One of the Directors should be authorized to Issue notice of General Meeting.

 Hold General Meeting

The General Meeting will be convened for the following purposes:

  • To check for the quorum of General Meeting.
  • To present the “Letter of Offer” to the members of the Meeting.
  • To pass a Special Resolution for the Issue of Preference Shares.

Filing of MGT-14

After passing of the Special Resolution in the General Meeting, the Form MGT-14 is filed with the Registrar of Companies (RoC). The Form MGT-14 should be filed within 30 days of passing of the Special Resolution. The following things should be attached with the MGT-14 form:

  • The notice of the General Meeting with the explanatory statement
  • A True Certified Copy of the Special Resolution passed.
  • The minutes of the General Meeting.

Circulation of Letter of Offer

The Letter of Offer should be sent to the shareholders through Registered post or speed post or an electronic medium. The Letter of Offer should be sent at least 3 days before the opening of the Issue of Preference Shares. The Offer will be open to shareholders for 15 days but should not exceed 30 days.  

Notice of Board Meeting

The notice of Board Meeting should be sent to all the directors at least 7 days before the date of the Board Meeting. The notice should include the agenda of the Board Meeting to be held.

Hold Board Meeting

The Board Meeting will be convened for the following purposes:

  • Check for the Quorum of the Board Meeting.
  • For the approval of the Allotment of Shares by passing Board Resolution.
  • To present the list of Allottees before the Board.
  • To pass the resolution for Issue of Share Certificate
  • To authorize 2 Directors and one more person to sign the Share Certificates to be issued to the Shareholders.  

Allotment of Shares

The Allotment of Shares should be done within 60 days of receiving of the application money by the Shareholders. After passing of the Board Resolution for Allotment of Shares, a Director is authorized to file e-form PAS-3 to the Registrar of Companies (RoC). The PAS-3 is Return of Allotment Form which should be filed within 30 days of passing of the Board Resolution. The PAS-3 should be attached with the following attachments:

  • Resolution for Allotment of Shares
  • List of Allottees    

Issue Share Certificate

The Share Certificates should be issued to the Shareholders within 2 months from the date of Allotment of Shares. The Share certificate should be issued in Form SH-1.

The Register of Members should be maintained as per Section 88 of the Companies Act, 2013[1].

Conclusion

Section 55 of the Companies Act, 2013, the Company can issue redeemable Preference Shares. The Public Offer is not mandatory for Issue of Preference Shares to the Shareholders. The accounts of the Preferential Shareholders are settled before than the other Shareholders. The process of issue of Preference Shares is lengthy. We at Corpbiz, have experts who can help you with the process of Issue of Preference Shares without Public Offer. Our experts will assure the successful completion of your work in the prescribed time.

Read our article:Issue of Shares through Private Placement

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Sakshi Sharda

Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.

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