Private Placement
Section 42 of the companies act, 2013 and Rule 14 of the companies (prospectus and allotment of securities) Rules, 2014
The term ‘Private Placement’ means any offer of securities or invitation to subscribe securities to a select group of persons by a Company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in the section 42 of the Indian Companies Act, 2013.
The offer for subscribing to any securities of the Company can be made to such number of persons not exceeding 50 (200 in aggregate in a financial year) excluding the QIBs and the employees of the Company to whom the securities have been offered under a scheme of employee’s stock option.
Do’s and Don’ts
- No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the Company.
- No Company offering securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.
- Shareholder’s special resolution shall be required to approve the Private Placement Offer and this resolution should be acted upon within 12 months. At any given point in time, there should be only one active offer for each kind of security.
- All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.
- A Company making an offer or invitation under this section shall allot its securities within 60 days from the date of receipt of the application money for such securities.
- If the Company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days and if the Company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% pa from the expiry of the 60th day.
- Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than-
(a) For adjustment against allotment of securities; or
(b) For the repayment of monies where the Company is unable to allot securities.
- All offers covered under this section shall be made only to such persons, whose names are recorded by the Company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the Company in such manner as may be prescribed.
- The minimum investment size per person of face value of security is Rs. 20,000/-
- Valuation Report is mandatory in private placement offer letter
Return/ Intimation to the Registrar of companies
The complete information about such offer (Private Placement Offer) shall be filed with the Registrar within a period of 30 days of circulation of relevant private placement offer letter.
Upon allotment of securities under this section, the Company shall file with the Registrar a return of allotment (Form PAS-3) in such manner as may be prescribed, including the complete list of all security-holders, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed within 30 days from the date of allotment.
Penalty
If a Company makes an offer or accepts monies in contravention of this section, the Company, its promoters and Directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or 2 Crore rupees, whichever is higher, and the Company shall also refund all monies to subscribers within a period of 30 days of the order imposing the penalty.
Procedure:
- Check article of association of the Company regarding private placement
- Call Board meeting
- Prepare offer letter (PAS-4)
- Make proposal for private placement
- Prepare list of persons to whom the option will be given
- Call EGM and pass Special Resolution for private placement and to approve the draft offer letter (PAS-4)
- File MGT-14 with ROC
- Issue offer letter in PAS-4 within 30 days of record of name of persons.
- Prepare complete record of private placement in PAS-5
- File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
- Allotment of shares within 60 days of receipt of money from the persons to whom the right was given.
- Call Board meeting for allotment shares.
- File PAS-3 with Roc within 30 days of allotment
- File e-form MGT-14 along with the resolution pass in the board meeting for allotment of shares. (if issuer company is not a private company)
- Issue share certificates within 60 days from the date of allotment (Section 56(4)).
Agenda of Board meeting
- To decide on the proposal of private placement of the securities.
- To approve Private placement offer letter and application form.
- To take note of list of proposed allottees to whom private placement is to be made.
- To authorize a person who shall all the activities of said issue.
- To approve and open separate bank A/c. in a schedule bank.
- To fix time, date and venue for holding General meeting of company for passing SR.
- To approve notice of GM along with the explanatory statement.
To authorize any person to sign and issue the notice of General meeting. |