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Private placement can be explained as a means of raising capital by the companies without going for public issues. Public Issues like Initial Public Offering and Further Public Opening are means of raising capital by the companies.
DEFINITION
A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise capital for expansion.
Condition for Private Placement under the Companies Act, 2013
- Maximum Number of Persons: An offer for private placement can be made to not more than 200 people in a financial year.
- Minimum amount of offer for an individual: The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities.
- Persons to whom an offer can be made: All offers shall be made only to those persons whose names are recorded by the company prior to the invitation to subscribe and allotments can be made only to such persons who have been addressed and the offer is made along with the Offer letter.
- Mode of Payment: 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.
- No advertisement of offer: No company offering securities under private placement shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an offer.
- Bank Account: The application money received from the private placement offer shall be deposited in a separate bank account in a scheduled bank.
- Minimum gap between two offers: A company can come with a new offer after completion of the earlier offer. However, no fresh offer or invitation shall be made unless the allotments with respect to any previous offer or invitation have been completed or been withdrawn or abandoned by the company.
- Allotment: Securities are to be allotted within 60 days from the date of receipt of the application money and if the company fails to allot securities, has to repay the application money to the subscribers within 15 days from the date of completion of 60 days and in case the company fails to repay the application money within the aforesaid period, the company is liable to repay application money along with interest at the rate of 12% p.a. from the expiry of the 60th day.
- Every unlisted public company making any offer for issue of any securities, before making such offer has dematerialized of its securities held by its promoters, directors, key managerial personnel in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
Prior checking points:
- Whether authorized share capital is sufficient for issue of shares through private placement and if authorized capital not enough, then first alter the capital clause of the memorandum of association of the company.
- Whether articles of association authorise for issue of shares through private placement and if not, then first alter the articles of association to include provisions for issue of shares through private placement.
- Confirm that shares which are to be issued through private placement are fully paid up shares
The provisions and procedures relating to issue of shares through private placement are as follows:
| S. No. | Particulars |
| 1. | Prepare a list of persons (not exceeding 50 in each offer and not more than 200 in the aggregate in a financial year for each kind of security) to whom offer may be made. |
| 2. | Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.
> at least 7 days before the date of board meeting or > in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1. |
| 3. | Convene board meeting for passing the following resolutions:
|
| 4. | Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s). |
| 5. | Obtain Valuation Report from the registered valuer appointed by the company and the relevant date of the Valuation Report shall be at least 30 days prior to the date on which the general meeting of the company is scheduled to be held. |
| 6. | Prepare and file e-Form MGT-14 for board resolution with the Registrar of Companies within 30 days of passing of board resolution. |
| 7. | Send notice of general meeting to all directors, shareholders, auditors, secretarial auditors and Debenture Trustee, if any, of the company at least 21days before the date of general meeting. |
| 8. | Ensure that the explanatory statement annexed to the notice of general meeting as mentioned in the prescribed rules. |
| 9. | Convene general meeting and pass special resolution for offer and issue of shares through private placement. |
| 10. | File e-Form MGT-14 with the Registrar of Companies within 30 days of passing of special resolution. |
| 11. | Prepare draft minutes of shareholders’ meeting and for finalisation, send the draft minutes to the chairman of that meeting. |
| 12. | Prepare private placement offer letter-cum-application form. |
| 13. |
> at least 7 days before the date of board meeting or > in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1. |
| 14. | Convene board meeting to pass the following resolutions:
(i) approval of draft private placement offer letter-cum- application form. (ii) opening of separate bank account with the scheduled bank for depositing the share application money. (iii) The company shall maintain a complete record of private placement offers in Form PAS-. 5. (iv) noting of name and other details of proposed allotees. |
| 15. | Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s). |
| 16. |
|
| 17. | Open separate bank account for keeping subscription money and ensure that money received from only those persons whose name is addressed in form. |
| 18. |
> at least 7 days before the date of board meeting or > in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1. |
| 19. | Convene board meeting, within 60 days of receipt of application money, to
pass following resolutions:
|
| 20. | Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/ e-mail or by any recognised electronic means, for their comment(s). |
| 21. | File return of allotment with the Registrar of Companies in e-Form No. PAS 3 along with a list of all security holders within 15 days of allotment. |
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It is private placement of shares. In such case PAS-3 is not required to be filed in 15 days.