When a company issues shares to a select group of investors, instead of inviting public at large, it is called private placement of shares. It falls neither in the category of a public issue, nor a rights issue. It is a faster way of raising capital, as a company has to comply with fewer requirements.
A Private Company may issue its securities-
1. By way of right or bonus ; or
2. Through private placement
A Public Company may issue securities-
1. To public through prospectus i.e “Public Offer”.
2. Through private placement.
3. Through right or bonus issue.
CONDITIONS FOR PRIVATE PLACEMENT
1. No of subscribers: Under Private Placement an offer can be made not more than 200 people and not just the limitation of allotment to 200 people but also invitation to subscribe cannot be made more than 200 people. Within this 200 people limit Qualified Institutional Buyers and Employees are excluded. No public announcement of such offers can be made.
2. Identify the persons to whom private placement offer/invitation has to be made: All offers shall be made only to those persons whose names are recorded by the company prior to the invitation to subscribe. Allotments can be made only to such persons addressed specifically to the persons whom the offer is made along with the Offer letter.
3. Money payable through cheque/DD: 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.
4. Amount of subscription: The money so received as subscription should be through the bank account of the person subscribing to the securities, shall be kept in a separate bank account of the company. The company shall also keep a record of the bank account from where such payments been received, which has to be utilised only for allotment and the value of the offer per person shall not be less than INR 20,000 of face value of securities . No cash transaction is permitted.
5. Approval: The price of the security has to be justified and it also requires a valuation report by a Registered Valuer (which can be a Company Secretary, Chartered accountant or a Cost Accountant)
6. Articles of Association must also prescribe about approval of the Offer: The Articles of Association must also provide for shareholders of the company through special resolution approving the Offer and this resolution should be acted upon within 12 months and that at any given point in time, there should be a active Offer for each kind of Security.
7. Tenure within which Allotment has to be carried out: Allotment has to be carried out within 60 days or the monies has to be repaid else from the 75th day and the failure to repay has a liability of interest at 12% p.a. In case of FDI (Foreign Direct Investment), RBI has provided for 180 days for allotment.
8. Filings: The company shall maintain a complete record of private placement offers in the Form PAS-5.
Provided that the copy of such records along with private placement offer letter in Form PAS-4 along with the names of the offeree has to be filed with the Registrar of Companies within 30 days from the date of circulation which includes the date of the Offer letter and again after allotment of the securities within 30 days a return of allotment has to be filed with the ROC.
9. File return of allotment with Registrar : a return of allotment of securities under section 42 shall be filed with the Registrar within 30 days of allotment in Form PAS-3 and with the fee as provided in the Companies (Registration Offices and Fees ) Rules, 2014 along with a complete list of all security holders containing-
1. Full name, address, PAN, and E-mail id of such security holders.
2. Class of security held
3. Date of becoming security holder
4. Number of securities held, nominal value and amount paid up on such securities and particulars of consideration received
5. Issue share certificates and update minutes book and registers.
10. Penalty: Non-compliance if any can lead to penalty amounting to INR 2 crores or the amount involved in the offer, whichever is higher.
STEPS INVOLVED UNDER PRIVATE PLACEMENT
(i) Send Notice for convening Board Meeting at least 7 days before convening the Board Meeting.
(ii) Notice shall be sent to shareholders for convening of Extra Ordinary General Meeting for the approval of private placement offer Letter.
(iii) Draft the private placement offer letter.
(iv) Special Resolution shall be passed in the EGM so convened, which shall remain valid for a period of 12 months.
(v) File Form MGT -14 with the ROC within 30 days of passing Special Resolution.
(vi) Issue offer letter in PAS-4 within 30 days of record of name of persons
(vii) Prepare complete record of Private Placement in PAS-5
(viii) File Form PAS-4 and Form PAS-5 with ROC within 30 days of issue of offer letter in Form GNL-2
(ix) Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
(x) Call Board Meeting for allotment of shares
(xi) File PAS-3 with ROC within 30 days of Allotment.
(xii) Issue share certificates and update minute’s book and registers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
(CS NitinJaiswal is Company Secretary in Practice from Delhi and can be reached at email@example.com)