Preferential allotment is biggest par of primary market. As per the Company Act 2013, the companies in India can raise funds by different methods, which include preferential issue, right issue, IPOs, ESOP, and sweat equity shares. Among all the prescribed methods, the preferential issue is considered to be the best fundraising option for unlisted companies.

When a company wants to raise funds it can do by issuing new shares to public or bulk allotment of shares to VC or Private equity funds is called private placement of shares. The main reason behind preferential issue of shares is to facilitates shareholders who are unable to buy large chunk of shares from market as it is too costly or unfeasible for them. But these shareholders do not get any voting rights and they are paid only when company earns profit.

Features and Benefits of preference shares

The features and benefits of preference shares for investors include: Dividends paid first. Higher claim on company assets. Additional investor benefits. Lack of shareholder voting rights. Right to repurchase shares. Investors can't vote.
Advantages of Preferential issue
1. Capital of preference shareholders is always safe. If in case company fails or gets bankrupt then preference shareholders will be paid first among all.
2. No brokerage costs is incurred and preferential shareholders get paid first when company earns profit and after them other share holders are paid.
3. If any company has not paid dividend in present year then shareholders has right to claim this dividend in the next years.
4. Raising money via a preferential issue is that it helps save costs and time involved in a public issue.
5. More important, if the concerned company is not doing too well at that point in time but requires capital, then retail investors may not want to participate in an issue.
Disadvantages of Preferential issue
Along with above mentioned advantages it has some disadvantages as well. and Also . 1. No voting rights are issued here.
2. when company gets bankrupts they are paid after NCD (Non Convertible Debentures) to Preferential share holders.
3. It is risky than bonds.
4. Higher cost than debt for issuing company.
There are various types of preferential issue and procedure preferential allotment of shares and SEBI rules and regulations. We suggest and guide how to raise fund via preferential issue & where and how to invest in preferential issue.