DEFINITIONS:-

Private Placement:-‘private placement’ means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application in form PAS-4”.

A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed1.

Offer or invitation made to the following will not be considered while calculating the limit of 200.

  • Qualified Institutional buyers
  • Employees of the company under a scheme of employees stock option as per provision of clause(b) of sub- section (1) of Section 62.

Securities:- “securities” include:-

  • Equity shares, Preference shares, debenture of any incorporated company or other body corporate;

1An offer or invitation to subscribe securities under private placement shall not be made to persons more than 200 in the aggregate in a financial year.

Key points:-

  • Company shall issue private placement offer letter to the identified persons in prescribed form PAS-4.
  • Company shall maintain a complete record of private placement offer in form PAS-5.
  • Private placement offer or application shall not carry any right of renunciation.
  • Company shall not be entitled to use money raised via private placement unless allotment is made and return of allotment in form PAS-3 is filed with the Registrar of Companies.
  • Company shall not make fresh offer or invitation via private placement unless allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn, abandoned by the company.
  • Approval of shareholders is required by passing special resolution.

Exception: – in case of offer or invitation for non-convertible debentures:-

1. If the proposed amount to be raised is within the limit as specified in clause (c) of subsection (1) of section 180 then in this case board resolution passed under clause (c) of subsection (3) of section 179 would be sufficient no need to take shareholders approval by passing special resolution.

2. If the proposed amount to be raised exceeds the limit as specified in clause (c) of sub-section (1) of section 180, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitations for such debentures during the year.

  • Payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities.
  • Mode of payment of subscription money by the subscribers of securities:-

1. by cheque;

2. by demand draft;

3. by other banking channel; not by cash

  • No company issuing securities under section 42 shall release any public advertisement or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue.

PROCEDURE OF PRIVATE PLACEMENT OF SECURITIES:-

1. Calling of Board Meeting of Board of Directors (BOD):-

BOD of the company in the board meeting discuss and approve the following:-

  • Private placement of securities subject to the approval of shareholders.
  • Identify the persons to whom company will made offer or invitation.
  • Fix Day, Date, Time, & Venue of the Extraordinary General Meeting (EGM) of the shareholders to get approval of shareholder for Private placement of securities and to approve offer letter PAS-4;
  • To open separate bank account for depositing money to be received from the subscribers of securities.
  • Approve draft notice of EGM along with agenda & explanatory statement to be issued to all members, directors & auditor of the company.
  • Authorise director or company secretary to issue notice of EGM.

2. Holding of Extraordinary General Meeting (EGM):-

Call and hold the Extraordinary General Meeting (EGM) of the members on the Day, Date, Time, & Venue as decided by the board of directors in their board meeting and the get shareholders approval for Private placement of securities by passing special resolution and approve offer letter under form PAS-4.

3. Circulation of offer letter under form PAS-4

  • Private placement offer cum application letter should be in the form PAS-4, serially numbered and addressed to the person to whom offer is made.
  • Offer letter shall be sent either in writing or in electronic mode
  • Offer letter should be issued within the period of 30 days from the date of general meeting.

4. Receipt of application money from the subscribers

  • Subscribers should made payment for the subscription of securities from his/her bank account.
  • In case subscribers are joint holder then payment should be made from bank account of the person whose name appears first in the application.
  • Company should keep record of the bank account from where amount of subscription has been received

5. Holding of Board Meeting for Allotment of securities (BOD):-

      BOD of the company in the board meeting discuss and approve the following:-

1. Allotment of securities within the period of 60 days from the date of receipt of application money

2. Issue of share certificates to the allottees of securities and authorize two directors and one authorised person to sign the share certificates.

ROC COMPLIANCE:-

 A. Filing of form MGT-14:- Company shall file MGT-14 with the Registrar of Companies(ROC) within the period of 30 days from the date of passing of special resolution with the following documents:-

1. CTC of EGM Resolution

2. Notice of EGM alongwith explanatory statement

3. Minutes of EGM

B.  Filing of form GNL-2:– Company shall file GNL-2 with the ROC within the period of 30 days from the date of circulation of offer letter with the following  documents:-

1. PAS-4 _offer letter

2. PAS-5_Complete record of private placement

C.  Filing of form PAS-3:- Company shall file PAS-3 return of allotment of securities with the ROC within the period of 15 days from the date of allotment with the following documents:-

1. List of Allottees

2. Board resolution of allotment of securities

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One Comment

  1. KP says:

    Do we have to approve PAS-4 in the same BM in which we are approving Notice of EGM??? or can a commitee formed by board can approve PAS-4 later on??

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