Private Placement of Shares/Securities – Companies Act, 2013

PRIVATE PLACEMENT OF SHARES/SECURITIES

The concept of private placement of securities is governed under section 42 of the Companies Act, 2013 read with rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014, wherein securities are offered to select group of persons through a private placement offer letter instead of going for public issue. It is a method for companies to raise additional capital and meet its working capital requirements.

CONDITIONAL REQUIREMENTS FOR PRIVATE PLACEMENT OF SECURITIES:

1. Opening of Separate Bank Account:-The Company must, before any offer is made, open a separate current account in a Scheduled Bank for the purpose of Private Placement. The funds from the Investors must be deposited in this bank account and kept in the same until allotment is made against such amount.

A Company cannot make any new offer of securities until the previous offer is completed or withdrawn by the Company.

2. No Public Advertisements:- The Company is not required to advertise the offer in any manner which may lead to knowledge of the offer to the general public at large.

3. Validity of the Resolution passed:- The special resolution passed by the members approving the offer for issue of securities will remain valid only for a period of 12 months from the date of passing the resolution.

4. Obtaining Valuation Report:-The Company is required to obtain valuation report from a registered valuer for the purpose of private placement.

5. Price of offer:- The price at which offer is made should not be less than the price as arrived as per the Valuation Report of a Registered Valuer.

STEP BY STEP PROCEDURE FOR PRIVATE PLACMENT OF SECURITES:

1. Convening of Board Meeting:-The first step in the process of right issue of shares is to convene a meeting of Board of Directors for which, notice along with agenda and notes to agenda needs to be circulated to the Directors at least 7 days before the meeting. The meeting can be also called at shorter notice to discuss on the agenda items.
The Company must convene a Board meeting to approve the private placement offer letter, valuation report and notice for convening general meeting.

2. Convening of General Meeting:-The Company needs to convene a meeting of members needs by issuing notice of general meeting to members for taking the approval by means of special resolution. The meeting can be convened either by giving notice of 21 clear days to members or at shorter notice.

3. Filing of form MGT-14:- Once the resolution is approved, the Company needs to file Form MGT-14 with the Registrar of Companies within 30 days of passing the special resolution.

4. Circulation of Private Placement offer letter:- The Company needs to circulate Private placement offer letter in form PAS-4 to the investors for obtaining their acceptance on the offer.

5. Receipt of funds from the investors:-: The share application money against the offer made is received from the investors in a Separate bank account and the allotment must be made not later than 60 days from the date of receipt of application money. In case the allotment is not made within a period of 60 days, the amount received must be refunded back to the investors within a further period of 15 days post which interest @12% shall be charged.

6. Convene a meeting of Board of directors for allotment of shares: A meeting of Board of Directors needs to be convened to approve the allotment of shares to the shareholders /persons from whom money has been received and to authorize any director/directors for making the necessary filing with the Ministry, for issuing share certificate and making payment of stamp duty.

7. Reporting to the Ministry:- The Company shall file form PAS-3 within 15 days of the Board meeting in which the allotment is approved with complete details as required.

8. Issuing of share certificates:- The Company shall issue share certificate within 60 days of the allotment which shall be signed by two directors of the Company and shall have the common seal of the company, if any as per the requirement of section 56 of Companies Act, 2013.

9. Payment of Stamp duty:- The Company needs to pay stamp duty on the share certificates at the applicable rates prevailing in the respective states where the registered office of the Company is situated.

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Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 42 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while opting for private placement issue in company, The author has tried to cover all the important points. Under no circumstance, the author shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.