Article focus on Private Placement under Section 42 of the Companies Act, 2013 shall be made only to a select group of persons.
Whose number shall not exceed fifty or such higher number as may be prescribed excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees’ stock option.
As Per Section 42, an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year.
Explanation: It is hereby clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is equity share, preference share or debenture. [i.e. 200 for equity shares, 200 for preference shares and 200 for debentures]. However, unless allotment with respect to one kind of security is completed, another kind of security shall not be issued. For example, if equity shares are issued first, preference shares or debentures cannot be issued unless allotment of equity shares is completed.
Highlights of private placement
No fresh offer or invitation 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with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
Every identified person willing to subscribe to the private placement shall apply by payment of subscription money either by cheque or demand draft or other banking channel and not by cash.
The money received on application 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.
A company shall not utilize monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar.
Company is not required to release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public about such an issue.
The Company shall make an allotment within 60 days from the date of receipt of application money. If the Company fails to allot the securities within 60 days, then it shall repay the application money to the subscribers within 15 days from the expiry of 60 days.
And if the Company fails to repay the application money within the said period i.e 15 days then it shall be liable to repay the money along with interest @12% per annum which shall be calculated from the expiry of 60 days.
Process for private placement
♥ Conduct Board Meeting
- To approve the list of identified persons to whom the securities are to be allotted.
- To approve the draft offer letter
- To approve the Notice for conducting Extra Ordinary General Meeting.
Note: Notice of Extra Ordinary General Meeting must include explanatory statement and disclosure such as:
♦ particulars of the offer including date of passing of Board resolution;
♦ kinds of securities offered and the price at which security is being offered:
♦ basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
♦ name and address of valuer who performed valuation;
♦ amount which the company intends to raise by way of such securities;
♦ material terms of raising such securities, proposed time schedule, purposes or objects of offer, contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects; principle terms of assets charged as securities.
♥ Conduct Extra Ordinary General Meeting
- To pass Special Resolution for approving Private Placement and Letter of Offer.
♥ File the Special Resolution through Form MGT-14 within 30 days from the date EGM.
♥ Circulate PAS-4 (Letter of offer) to the person to whom the offer is made. It shall be sent either in writing or in electronic mode.
♥ Company shall issue private placement offer cum application letter only after filling MGT-14.
♥ Company shall maintain a complete record of private placement offers in Form PAS-5.
♥ File PAS-3 within 15 days of allotment along with a complete list of all the allottees containing-
- the full name, address, PAN and E-mail ID of such security holder;
- the class of security held;
- the date of allotment of security;
- the number of securities, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.