Summary: Private placement offers companies a strategic avenue for raising capital by issuing securities to a select group of investors, distinct from public offerings. This method, primarily governed by Section 42 of the Companies Act, 2013, and the Companies (Prospectus and Allotment of Securities) Rules, 2014, necessitates strict adherence to statutory compliance, meticulous documentation, and precise timelines. Unlike public issues, private placements afford greater control and confidentiality but come with legal obligations, including specific form filings, maintenance of statutory registers, and adherence to investor number restrictions. The process begins with a board meeting to decide on the list of offerees, the offer price (supported by a valuation report), the number of shares, and payment terms. Subsequently, a general meeting is held to pass a special resolution approving the share issuance and the letter of offer (Form PAS-4). Immediately after the general meeting, Form MGT-14, along with the special resolution, must be filed with the Registrar of Companies (ROC). The letter of offer is then issued to selected persons in writing or electronic mode, accompanied by serially numbered application forms, only after filing MGT-14. The offer must remain open for at least 30 days, during which time share application money is received into a separate bank account. Within 60 days of receiving the money, another board meeting is convened to allot the shares, and a list of allottees is prepared. Form PAS-3, detailing the allotment, must be filed with the ROC within 15 days of this board meeting. Finally, share certificates are to be issued within two months of allotment in Form SH-1. Each step, from the initial decision to the final share certificate issuance and statutory filings, is critical for ensuring transparency and regulatory oversight, as non-compliance can lead to penalties and invalidate the offer.
Introduction
Private placement is a strategic method of raising capital, allowing companies to issue securities to a select group of investors without resorting to public issuance. Governed primarily by Section 42 of the Companies Act, 2013, and the accompanying Companies (Prospectus and Allotment of Securities) Rules, 2014, this route demands stringent compliance, detailed documentation, and adherence to prescribed timelines. Unlike public offers, private placements offer greater control and confidentiality, but come with statutory responsibilities such as filing specific forms, maintaining registers, and observing restrictions on the number of investors.
This article provides a comprehensive flowchart, supported by statutory references, applicable rules, forms, and practical insights, to guide professionals in executing a compliant private placement process.
| S. No. | Days | Particular | Documents/ Information | Forms/ Section |
| 1. | 0 | Discussion and Decision |
|
Sec 42, Rule 14 |
| 2. | 1 | Notice to call Board Meeting for Issue of Shares. |
|
SS 1 |
| 3. | 0+8 | Hold the Board Meeting |
|
Sec 42, Rule 14 |
| 4. | 32 | Hold General Meeting |
|
Sec 42(2), 102 |
| 5. | 33 | Filing of MGT 14 | Immediately after General Meting file MGT 14 with Special Resolution to ROC | |
| 6. | 34 | Issue Letter of Offer |
|
Sec 42(3), Rule 14(3) |
| 7. | Offer open for at least 30 days |
|
Sec 42(7), Rule 14(3) | |
| 8. | 63 | Within 30 days of issuance of letter of offer |
|
Sec 42(6) |
| 9. | 64 | Notice Calling Board Meeting |
|
Sec 42(4) |
| 10. | 90 | Hold the Board Meeting (within 60 days of receipt of Money) |
|
Sec 42(4) |
| 11. | 105 | Filing of Form PAS 3 | Within 15 days of Board Meeting | Sec 42(8), Rule 14(6) |
| 12. | Issue Share Certificate | Within 2 months of allotment in form Sh-1 | Sec 56 | |
| NOTE | MGT-14: File form with ROC within 30 days of passing of Special Resolution for issue of shares
Attachment: ♦ CTC of Board Resolution for Issue of Letter of offer for right issue of shares. PAS-3: File form with ROC within 15 days of Passing of Board Resolution for Allotment of Shares. Attachment: ♦ CTC of Board Resolution for allotment of Shares. ♦ List of Allottees. |
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Conclusion
In conclusion, while private placement serves as an efficient mechanism for capital infusion without diluting control extensively, it is surrounded by a robust legal framework to ensure transparency and regulatory oversight. From convening board and shareholder meetings to timely filings with the Registrar of Companies and maintaining statutory registers, each step is critical. Non-compliance not only attracts penalties but may also render the offer invalid. Therefore, a well-structured approach and timely professional intervention are essential to navigate the procedural landscape effectively.
The flowchart and compliance table provided herein serve as a practical guide for professionals—Company Secretaries, Chartered Accountants, and compliance officers—to ensure seamless execution of private placements in line with the law.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Also Read:
Difference between Right issue, Private Placement & Preferential Allotment
Private Placement- Full Concept with Procedure
Step by step procedure on Private Placement in case of Private Limited Company
Private Placement under Section 42: Process, Provisions, Forms and Rules
Step-by-Step Guide: Issuance of Shares on Preferential Basis
Dematerialisation of Securities in Private Companies: Rules & Benefits
Process for Issue of Preference Shares
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