Financial Daily from THE HINDU group of publications
Tuesday, Dec 02, 2003
Financial Daily from THE HINDU group of publications Tuesday, Dec 02, 2003 |
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Regulatory Bodies & Rulings Corporate - Preferential Allotments Shareholders nod to be must for unlisted cos preferential offer Richa Mishra
New Delhi , Dec. 1 UNLISTED public companies would have to seek shareholders' approval to issue shares on preferential basis. The Department of Company Affairs (DCA) is set to rule that issuance of shares on a preferential basis can be made by an unlisted company only when a special resolution is passed by the members in a general meeting authorising the board of directors for the purpose. All issuance of shares or warrants or other financial instruments with conversion option would require certification by statutory auditors or a company secretary in practice, stating that the issue is in conformity with the rules issued by the DCA. Such certificate must be laid before the meeting of the shareholders is convened. According to sources, the proposed rules for unlisted public companies (preferential allotment) will also envisage that a company cannot issue shares on a preferential basis unless authorised by its Articles of Association. The special resolution must be acted upon within a period of 12 months, the rule is likely to stipulate. "The norms for preferential allotment is based on the recommendations made by a DCA-constituted committee to consider the issues relating to sweat equity shares, employees stock options schemes and preferential allotment for companies other than listed companies," official sources said. On the issue of shareholders' approval, the committee was of the view that the approval mandated currently under the Companies Act should be an informed decision. As such, additional disclosures must be made about the class of proposed allottees, the price or price band, the changes in shareholding pattern and control arising from the allotment, and the time period during which the allotment is proposed to be made. "These rules would be applicable to all unlisted public companies in respect of preferential issue of equity shares, fully convertible debentures, partly convertible debentures or any other financial instruments, which would be convertible into or exchanged with equity shares at a later date," sources said. In respect of warrants, DCA is set to specify where warrants are issued on preferential basis with an option to apply for and get the shares allotted, the issuing company shall determine before hand the price of the resultant shares. In fact, the explanatory statement to the notice for the general meeting must contain all the disclosures on issues such as the price or price band at which the allotment is proposed, the relevant date on the basis of which price has been arrived at, and the object of the issue through preferential offer. A company would also be required to give the proposed time within which the allotment is to be completed and whether a change in control is intended or expected.
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