The principal purpose is to enlarge its share capital. They have three options to do the same:
- New issue of shares to present shareholders.
- Making an open offer.
- Bulk allotment of shares to a group of individuals or companies.
The rationale behind preferential allotment is to provide a way to enable the equity participation of those who can be shareholders, but for whom it may be exceedingly costly or unfeasible to buy large chunks of shares from the market.