Summary: Private placement refers to the process of issuing securities, including shares or debentures, to a limited or targeted group of investors rather than through a public offer. The framework is primarily governed by Section 42 of the Companies Act 2013, read with the applicable rules, while Section 62(1)(c) may additionally apply where the issue constitutes a preferential issue. The compliance process covers verification of the number of proposed offerees, authority under the Articles of Association, authorised share capital, dematerialisation requirements, identification of proposed allottees, valuation, Board approval, preparation and approval of PAS-4, calling of a general meeting, shareholder approval through special resolution, filing of applicable resolutions with the Registrar, maintenance of records, receipt and verification of application money, allotment within the prescribed period, refund and interest requirements, filing of PAS-3, dematerialisation or issue of share certificates, and updating statutory records and the capitalisation table. The supplied checklist also identifies the documents required at each stage, including Board and shareholder resolutions, PAS-4, PAS-5, valuation report, MGT-14, subscription documents, investor KYC, bank records, PAS-3 and updated statutory registers. It further sets out the principal timelines, including notice periods, filing deadlines, the 60-day allotment period, refund requirements and the period for issuing physical share certificates where permitted.
A. Introduction
Private Placement refers to the process of issuing securities (shares or debentures) to a limited or targeted group of investors, unlike public offer which is open for the general public to subscribe. If the offer is made by listed entities, then SEBI (ICDR) Regulations will come into play which provides specific criteria of eligible investors to fulfill the threshold requirement of 200. Let us examine the compliance requirements for this arrangement from the Company Law Framework.
B. Governing law
The Private Placement is primarily governed under the Companies Act 2013. The relevant sections to consider are as follows –
1. Section 42 – issue of securities by companies.
2. Section 62(1)(c) – company to issue further shares to any identified persons, including outsiders, new investors, or promoters, provided it is authorized by a special resolution.
C. Steps Involved
The table lays down the detailed steps involved in private placement in the chronological order.
| S. no. | Step | Specific Provisions |
|---|---|---|
| 1. | Check the number of proposed offerees to determine whether it qualifies for private placement – offer cannot be made to more than 200 persons, subject to prescribed exclusions such as QIBs and employees receiving securities under an ESOP | Section 42 of the Act read with Rule 14(2) |
| 2. | Confirm that the Articles of Association authorizes the proposed issue | Section 42 read with Rule 13(2)(a) |
| 3. | Check authorised share capital – If proposed issue exceeds authorised capital, increase authorised capital before allotment | Section 61 and 64 of the Act |
| 4. | Check dematerialization requirement when the private company is required to issue securities only in dematerialized form | Rule 9B |
| 5. | Identify proposed allottees/offerees | Section 42 (2) read with Rule 14 |
| 6. | Obtain valuation – Pricing and valuation disclosures must be appropriately supported by a registered-valuer report | Rule 14 |
| 7. | Check if it qualifies as preferential issue – Section 62(1)(c) and Rule 13 may apply in addition to Section 42 | Section 62 (1)(c) |
| 8. | Board Approval – Board approves issue of securities, proposed terms, investors as well as initiation of shareholder-approval process | Section 179(3)(c) |
| 9. | Approve draft private-placement offer letter – Board should approve the draft PAS-4 and transaction terms | Section 42 read with Rule 14 |
| 10. | Calling a general meeting – General meeting notice and explanatory statement must contain prescribed information | Section 101 and 102 |
| 11. | Prepare explanatory statement which include issue size, security, price, basis of pricing, valuation details, objects, material terms, proposed timeline etc. | Rule 14 |
| 12. | Send the notice for general meeting | Section 101 |
| 13. | Obtain shareholder approval by passing of a special resolution | Section 42 read with Rule 14 |
| 14. | Additional shareholder approval if Section 62(1)(c) applies | Section 62(1)(c) read with Rule 13 |
| 15. | Filing of special resolution with RoC – applicable resolutions must be filed with the Registrar within the prescribed period, generally 30 days | Section 117 |
| 16. | Record names of identified persons – Maintain prescribed record of persons to whom offers are made | Section 42(3) read with Rule 14 |
| 17. | Prepare, record and issue Private Placement Offer-cum-Application Letter to the identified individuals – PAS 4 | Rule 14 |
| 18. | No public advertisement to inform the public about the private placement | Section 42(7) |
| 19. | Maintain record of private-placement offers received | Section 42(7) read with Rule 14 |
| 20. | Receive application money – Application money must be received through banking channels and subject to the prescribed requirements | Section 42(4) and 42(6) read with Rule 14 |
| 21. | Verify source of application money | Rule 14 |
| 22. | Complete allotment within 60 days from receipt of money and refunded if allotment is not made within this period – If refund is not made within the prescribed period, 12% p.a. interest becomes payable from expiry of the 60-day period | Section 42(6) |
| 23. | Board approves allotment to identified subscribers | Section 179(3)(c) read with Section 42 |
| 24. | Return of allotment (PAS-3) must be filed within 15 days of allotment | Section 42 (8) and Section 42(9) read with Rule 14 |
| 25. | Dematerialisation of securities – Credit of securities to investor’s demat account where dematerialisation is mandatory | Rule 9B |
| 26. | Issue share certificates where physical shares are permitted along with complete execution, stamping and delivery requirements | Section 46 |
| 27. | Register of Members / statutory registers – Records must indicate new shareholders/security holders and allotment particulars | Section 46, 56 and 88 |
| 28. | Capitalisation Table must reflect post-issue shareholding, dilution and paid-up capital. | Corporate records |
| 29. | Maintenance of evidence that funds are used consistently with the approved purpose and applicable transaction documents. | Bank records |
D. Documents required
The list of documents which are required for this procedure are as follows –
1. Board meeting notice & agenda
2. Board resolution approving private placement
3. Draft Private Placement Offer-cum-Application Letter – PAS-4
4. Application form forming part of PAS-4
5. List of identified persons/offerees
6. Record of private-placement offers – PAS-5
7. Notice of general meeting
8. Explanatory statement under Section 102
9. Explanatory statement under Section 102
10. Valuation report
11. MGT-14 and attachments
12. Subscription/application form
13. Investor KYC / PAN / address proof
14. Proof of receipt of subscription money
15. Bank statement showing investor payment
16. Separate bank-account records
17. Board resolution approving allotment
18. PAS-3 – Return of Allotment
19. PAS-3 allottee statement/attachments
20. Share certificates / demat credit documents
21. Updated Register of Members
22. Updated statutory registers
23. Updated cap table/shareholding pattern
24. Shareholders' Agreement
25. Subscription Agreement / Share Subscription Agreement
E. Timelines
| S. no. | Event | Time period |
|---|---|---|
| 1. | Board meeting notice | at least 7 days’ notice |
| 2. | General meeting notice | 21 clear days’ notice |
| 3. | File MGT-14 | Within 30 days of passing the resolution |
| 4. | Send PAS-4 to identified person | Within 30 days of recording the person’s name |
| 5. | Allot securities | Within 60 days from receipt of application money |
| 6. | Refund application money if allotment not completed | Within 15 days after expiry of 60 days |
| 7. | Interest on delayed refund | From expiry of the 60th day |
| 8. | Board meeting for allotment | Within the 60-day allotment period |
| 9. | File PAS-3 | Within 15 days of allotment |
| 10. | Issue share certificates | Within 2 months from allotment, where physical certificates are permitted |
