Exercises · Q5
Q.Write short notes on:
(a) Private Placement,
(b) Preferential Allotment, and
(c) Employees Stock Option Scheme (ESOP) and Sweat Equity Shares.
Gujarat GsebTextbookSubjectiveImportance★★★★★
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Start your 14-day free trial to unlock the full solution →- Private Placement. Section 42 of the Companies Act, 2013 permits a company to offer its securities to a select, identified group of persons, other than by way of a public offer. The offer can be made to not more than two hundred persons in a financial year, a ceiling that excludes qualified institutional buyers and employees being offered securities under an approved stock option scheme. The offer must be made through a private placement offer letter (in the prescribed form, commonly referred to by its form number under the rules) addressed specifically to the identified persons, whose names and details must be recorded by the company before the offer is made. Application money must be paid only through a banking channel — cheque, demand draft, or other recognised electronic mode — and never in cash, and the company must complete allotment within sixty days of receiving the application money; if allotment is not made within this period, the money must be refunded within fifteen days, failing which it must be repaid with interest at the rate prescribed by rule.
- Preferential Allotment. A preferential allotment refers to an issue of shares (or other convertible securities) made by a company to a specific, pre-identified set of allottees — commonly promoters, strategic or financial investors, or creditors converting debt into equity — on a preferential basis, outside the ordinary course of a rights issue or a public issue. Being a form of private placement in substance, it must satisfy Section 42's conditions on numbers, payment mode, and allotment timelines, and additionally requires a special resolution of the shareholders authorising the specific issue, along with compliance with pricing norms and lock-in conditions (particularly where the company is listed and SEBI's regulations apply) meant to prevent the allotment being used to transfer value to a favoured allottee at the expense of existing shareholders. …
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