Private Placement and Its Procedure

Ruchi Shah

Read with section 42 and companies prospectus and allotment securities rule, 2014

Definition: Private Placement in lay man’s language is making an offer of securities to select group of persons and not to existing shareholder’s.

For funding via private placement, company need to fulfill certain conditions as follows:

1. Offer cannot be made to persons exceeding 50 in an offer and not more than 200 in a financial year.

2. Offer cannot be made to qualified individual buyers and employees of the company.

3. Offer can be made only to person whose name are recorded and company shall keep the record in the format “PAS-5”

4. Offer should be made in format “PAS-4”, Both PAS-4 and PAS-5 to file with ROC within 30days of circulating the offer letter.

5. The invitation per person should be within investment size of not less than Rs 20000 of face value of securities.

6. No company shall give any advertisement or public announcement of such offering.

7. All the monies payable for subscription can be made by any banking channel (cheque, DD etc) but not via cash and it shall come from the bank account of the person subscribing such shares. The company shall keep record of bank account.

8. The company need to allot shares within 60 days of receipt of application money & if not able to allot, repay within 15 days from completion of 60days and if fail to do the same beyond the specified period need to repay money with interest @ 12 %p.a.

9. All the application money shall be kept in a separate bank specifically in a schedule bank and should be utilized only for adjustment against allotment and repayment of monies.

10. Post allotment a return to be filed with ROC in the form “PAS-3” within 30days of allotment.

11. On contravention of this section company, promoters and directors will be liable of penalty to the extent of amount involved in offer or 2 crore rupees whichever is higher and to refund all the subscription money within 30 days of order imposing such penalty .

Procedure

1. Check articles for the provision of private placement

2. Call Board meeting

• To propose private placement
• To draft offer letter
• To identify the person to whom offer is to be made.
• Call EGM (The explanatory statement annexed to notice shall explain the justification of price at which offer is made)

3. Call EGM

• Pass SR and approve offer letter
• Record names in PAS-5

4. File MGT-14 (within 30days of EGM)

• Attachment

Notice of EGM

SR

Minutes

5. Issue Offer letter within 30 days of recording name

• Offer letter to be serially numbered
• Address to the person to whom offer is made

6. File form PAS-4 along with PAS-5 as attachment within 30 days of circulating offer letter with ROC and SEBI if the company is listed.

7. Allotment to be made within 60days of receipt of subscription money.

8. Call BM to allot shares

9. File PAS-3 with ROC within 30 days of allotment

Attachment-

• Complete list of allottees
• BR for allotment

10. File MGT-14 for allotment of shares(exempt for private companies)

11. Issue share certificates within 60 days of allotment.