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Gist – As per Section 42 of Companies Act, 2013

Private Placement – Meaning

• means any offer or invitation to subscribe or issue of securities

• to selected group of persons by a company (Other than by way of Public Offer) through Private Placement offer-cum application letter (PAS 4) ;

Other Imp points

• Subscription money to be paid either by cheque or demand draft or other banking channel and not by cash;

• Private placement offer & application shall not carry any right of renunciation;

• No fresh offer/invitation under this section shall be made unless the allotments made earlier have been completed or that offer /invitation has been withdrawn/abandoned by the company;

• A Company may, at any time, can make more than one issue of securities to such class of identified persons;

• A company shall maintain a complete record of private placement offers in form PAS-5.

Allotment:

Maximum allotment shall not exceed 50 or higher as prescribed(maximum 200) members in a financial year to select group of persons who have been identified by the Board, excluding:

• QIB and Employees of the company who have been allotted shares under Employee Stock Option Plan (ESOP) ;

• Limit applicable separately to each type of security (i.e. equity/preference/debenture);

• A private placement offer-cum application letter shall be in the form of an application Form PAS-4 serially numbered and addressed specifically to whom the offer is made (either in writing or electronic form) within 30 days of recording the name of such person;

• Allot securities within 60 days from the date of receipt of the application money( if co. is unable to allot securities within 60 days, then made refund within 15 days from the expiry of 60 days & if refund not made within 15 days then repay with interest @12% p.a. from expiry of 60th day);

• Monies received shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than:

– for adjustment against allotment of securities;

– for the repayment of monies where the company is unable to allot securities.

• No public advertisements or utilization of media, marketing/distribution channels/agents

• Return of Allotment to be filed within 15 days of allotment in Form PAS-3;

Forms

MGT 14 Filing of Resolution Within 30 days of passing of resolution.
PAS 4 Offer cum application letter Within 30 days of recording the name of the allottees.
PAS 5 List of Allottees Attached with Form PAS 3
PAS 3 Return of Allotment Within 15 days of allotment of securities.

Other Points to be considered:

A company shall not make an offer or invitation to subscribe to securities through private placement unless the proposal has been previously approved by the shareholders of the company, by a special resolution for each of the offers or invitations.

Explanatory statement annexed to the notice for shareholders’ approval, the following disclosure shall be made:-

a. particulars of the offer including date of passing of Board resolution;

b. kinds of securities offered and the price at which security is being offered:

c. basis or justification for the price (including premium, if any) at which the offer or invitation is being made;

d. name and address of valuer who performed valuation;

e. amount which the company intends to raise by way of such securities;

f. 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:

Source- https://taxguru.in/company-law/companies-prospectus-allotment-securities-second-amendment-rules-2018.html

Author Bio

Akhil Gupta is a Commercial Manager (Finance) at Winterhalter India Private Limited (Commercial Dishwashing Systems) . He is a graduate from Delhi University and has cleared second group of CA-Final. He can be contacted at akhil.gupta44@yahoo.in. View Full Profile

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