Updated on March 7, 2023
One of the main purposes of an IPO is to raise funds to meet the company’s capital requirements but the process can be quite time-consuming. In order to raise funds faster, many companies opt for a preferential issue.
A preferential issue is a directed issue to a select group of investors under section 81 of the Companies Act, 2013. The issue can be by a listed or an unlisted company for a subscription of their shares or other securities and is the quickest way for a company to raise capital. This issue is not in the nature of a rights issue or a public issue and the investors subscribing to securities under this issue usually do not have any voting rights but have the right to dividends as well as the right to the profits of the company before the ordinary shareholders. The provisions and the procedure for the preferential issue are provided under section 62 along with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, and Section 42 along with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014