Distinguish between the following: (ii) Private Placement and Preferential Allotment

Following are the main differences between private placement and preferential allotment: Definition: Private Placement can be described as an offer or invitation to offer made to specified investors by issuing securities, so as to raise funds. On the contrary, Preferential Allotment is the issue of shares or debentures to a particular group of persons made by a listed company, to raise funds. Governing Section: Private Placement is governed by section 42 of the Companies Act, 2013. Conversely, in the case of Preferential Allotment, section 62 (1) of the Companies Act, 2013 will apply. Offer Document: In the case of private placement, 'Private placement offer letter' is sent to the investors for inviting them to subscribe for shares. As against, in the case of preferential allotment, no such offer document is issued to people. Mode of Payment: In private placement, application money can be received through cheques, demand draft or any other banking modes but not cash. Unlike, preferential allotment in which the money is received in cash or kind. Bank Account: In private placement, the application money is kept in the separate bank account of a scheduled commercial bank. On the contrary, no such account is required in case of preferential allotment. Authorization in Articles: The private placement must be authorized by the articles of association of the company. In contrast, no such authorization is required in case of preferential allotment.