Allotment of Shares
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Whenever the Company requires fund for its expansion or existing projects, it issues shares to the public for subscription.Few Companies might want to increase its share capital base so as to avoid unwanted hostile takeovers and also not to increase the share capital in the monetary terms than companies issue and allot Bonus shares. Bonus shares are issued to the existing shareholders only against the shares held by them in predetermined exchange ratio.
Whenever the Company needs fund it either utilizes its reserves or issues and allots further shares to either existing shareholders or to the public. Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements).
Under Right Issue, with the approval of the Board, shares are issued to the existing shareholders of the Company in the proportion of their current existing shareholding by issuing a Letter of Offer in this regard.
Private placement of shares is governed by Section 42 of the Companies Act, 2013 read with rules framed thereunder. With the approval of the members via Special Resolution, Shares are allotted to a selected group of persons by the issue of Private Placement Offer Letter (PPOL) which does not carry any right of renunciation. The subscription money must be paid either by cheque or demand draft or other banking channel and not by cash and be kept in a separate bank account in a scheduled bank. An offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year. A complete record of private placement offers shall be prepared in Form PAS-5.
Whereas, Preferential allotment refers to the allotment to any person being an existing shareholder or an outsider, either for cash or for a consideration other than cash. The price of such shares shall be determined by the Valuation Report.
To provide funding for expansion or existing projects
Issue of shares do not add debt to the Company
No additional capital cost on the Company.
Improves marketability and better funding by finance institutions to the Company
Identify the Requirement
Convene a Board Meeting
Pass the required Ordinary or Special Resolution
Pass the required Ordinary or Special ResolutionFile necessary forms with the Registrar of Companies
Authorized capital must be enough to allow issue of shares
Number of Shares to be issued, Value per share
Name, Address proof, PAN card, E-mail and Contact number of the Allottee
Digital Signature of any authorized Director
Rights Issue to existing Shareholders in the same ratio upto rupee 50 Lakhs only (Exclusive of Govt Fee and GST)
₹5,000.00Add to cart
Rights Issue through renouncement of rights in different ratio upto rupee 50 Lakhs only (Exclusive of Govt Fee and GST)
₹8,000.00Add to cart
Issue of Shares through Private Placement or Preferential Allotment of upto rupee 50 lakh(Exclusive of Govt Fee and GST)
₹18,000.00Add to cart
1. What is a right Issue?
Issue of Shares to existing shareholders as on record date is called a Rights Issue. The rights are offered in a ratio to the number of shares or securities held by the shareholder as on the record date.
2. Can I apply for additional shares in the rights issue apart from my entitlement?
Yes, applicants can apply for any number of additional shares but the allotment of the same will depend on shares available for apportionment and will also be in proportion to your holding, irrespective of additional shares applied by applicants.
3. What are the options available to an Eligible Equity Shareholder in rights Issue?
The Rights Entitlement Letter will clearly indicate the number of Rights Equity Shares that the Eligible Equity Shareholder is entitled to. If the Eligible Equity Shareholder applies in the Issue, then such Eligible Equity Shareholder can:
(i) apply for its Rights Equity Shares to the full extent of its Rights Entitlements; or
(ii) apply for its Rights Equity Shares to the extent of part of its Rights Entitlements (without renouncing the other part); or
(iii) apply for Rights Equity Shares to the extent of part of its Rights Entitlements and renounce the other part of its Rights Entitlements; or
(iv) apply for its Rights Equity Shares to the full extent of its Rights Entitlements and apply for additional Rights Equity Shares; or
(v) renounce its Rights Entitlements in full.
4. Can an application in the rights Issue be made using third party bank account?
Investors can make payment only using bank account held in their own name. Please note that Applications made with payment using third party bank accounts are liable to be rejected.
5. Maximum number of person to whom private placement can be made?
Private placement can be made to maximum 50 persons or higher number at a time, excluding
(a) Qualified Institutional Buyer (QIB)
(b) employees under stock option scheme under section 62(1)(b) of Companies Act 2013.
6. Maximum limit for making offer for Private placement?
Offer or invitation can be made to not more than two hundred persons in the aggregate in a financial year, excluding offer to QIB and Employees stock option. This restriction would be reckoned individually for each kind of security that is equity share, preference share or debenture [i.e. 200 for equity shares, 200 for preference shares and 200 for debentures]. However, unless allotment with respect to one kind of security is completed, another kind of security shall not be issued.
7. What is the time limit for making allotment?
Allotment must be made within 60 days. If not made within 60 days, amount should be refunded within 15 days. Otherwise, interest @ 12% will be payable. The money shall be kept in a separate bank account, either for allotment or for repayment.
The offer shall be made to specific persons by name and complete information and record of such offer shall be filed with ROC within 30 days of circulation of private placement offer.
No advertisement through media, marketing or distribution channels or agents shall be made of such offer. Return of allotment with complete details of security holders shall be filed with Registrar.
8. What is the minimum value of offer?
The value of such offer or invitation per person shall be with an investment size of not less than Rs 20,000 of face value of the securities. This restriction does not apply to issues by NBFC registered with RBI and housing finance companies registered with NHB (National Housing Bank). If RBI or NHB has not specified similar regulation, the provision of Companies Act shall apply.
9. Does every issuance requires a Valuation Report?
Valuation Report is to be obtained from the registered valuer in case of Private Placement and preferential Allotment and the same is not required in case of Right issue of the shares.