Preferential Issue

Preferential Issue is an issue of shares or securities listed by companies to a select group of people under Section 81 of Companies Act, 1956. It is neither a rights issue nor a public issue. It is also regarded as a faster way to raise equity capital for a company.

Those securities or shares which are offered through an issuance to the public, employee stock option scheme, rights issue or bonus shares or sweat equity shares which are issued in a foreign country are not included in preferential allotment of securities

Based on people’s interest, preferential shares are allotted to people or companies or venture capitalists at prices which are determined prior to allotment. Any company can opt for preferential allotment of securities, be it private or public companies, listed or unlisted companies, under Section 8 of the Companies Act, 2013.

Under Section 81 of the Companies Act, 1956 it which is neither a rights issue nor a public issue. Company which allots shares states that whenever it will pay dividend, preference shares holders will be paid first.

If the company goes bankrupt, a person holding preferential shares should be paid from company’s assets before common stockholders. But, these shareholders don’t have the leisure to cast votes.