Definition
Preferential Allotment
Preferential allotment is the issue of shares or convertibles by a listed company to select investors on a private basis, subject to SEBI pricing rules.
A company can issue shares to a specific group — promoters, strategic investors or institutions — through preferential allotment without a public offer. SEBI prescribes a minimum price based on recent market-price averages and a lock-in on the allotted shares to prevent abuse.
Preferential allotments are used to bring in strategic partners, raise quick capital, or let promoters increase their stake. Because they can shift control and dilute existing holders, they require shareholder approval and detailed disclosures.
Related terms
- Qualified Institutions Placement (QIP)A QIP is a fast way for a listed company to raise capital by selling shares only to qualified institutional buyers, without a full public offer.
- Private PlacementA private placement is the sale of securities to a limited, identified group of investors rather than to the public at large.
- Lock-in (IPO)Lock-in is a period after listing during which certain shareholders are barred from selling their shares.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.