Summary: Under the Companies Act 2013, private placement is governed by Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. The process begins with altering the company’s Memorandum and Articles of Association to accommodate the private placement. A board meeting must be conducted to approve the offer letter and related documents, followed by a general meeting where shareholders pass a special resolution. The company then files Form MGT-14 with the Registrar of Companies (ROC) within 30 days, along with necessary documents. Securities must be allotted within 60 days of receiving the application money, and Form PAS-3 must be filed with the ROC within 30 days of allotment. The company must maintain records in Form PAS-5 and issue share certificates. Penalties apply for non-compliance, including a fine up to Rs. 2 crore or the amount involved in the offer, whichever is higher, and the requirement to refund all monies to subscribers within 30 days of the penalty order.
The companies act 2013 has introducing the concept of the private placement that covers under section 42 read with Rule 14 of Companies (Prospectus and allotment of Securities) Rules, 2014.
The total number of allottees restricted to the limit of 50 or such higher number as may be prescribed by the provisions excluding the Qualified Institutional buyers and employees of the company offered stock options. Also as per Section 42, an offer or invitation to subscribe securities under private placement shall not be made to persons more than two hundred in the aggregate in a financial year.
Before going to the process and other aspects of the topic, here are some points needed to be considered when you are in the process of the private placement. These are:
The Company shall make an allotment within 60 days from the date of receipt of application money.
The limitation of allotment to 200 people is not just restricted to 200 people but even an invitation to subscribe cannot be made to more than 200 people.
The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities. The payment for subscription should be through the bank account of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received.
If the company fails to allot the securities in the period of 60 days, so the company shall repay the money in the period of 15 from the expiry of the 60 days. There is the provision that defines the penalty of 12% per annum interest on the repayment amount if the company fails to repay the money within the period of 15 days.
Now here is the process of the private placement, presented in the points, covering almost every points, for giving an expected procedure of private placement to the reader.
Process of private placement:
1. Altering the Memorandum and Articles of Association: In continuity with the drafting of the specified documents required for the private placement, the authorized person should confirm about the authorized and paid up share capital of the company and also the provisions required to be listed in the articles of the company.
2. Conduct of Board meeting: The first step after sending of notice of board meeting annexed with the explanatory statements, agenda specified and prior intimation to the stock exchange (if the company is listed on the exchanges), with confirming the quorum of the meeting, is to approving the matter of the private placement covering the draft offer letter, list of the identified persons and also the notice of the general meeting.
3. Conduct of General meeting for the approval of members: After approving the matter of private placement in the meeting of board of directors, there is need of passing the resolution and approving letter of offer with other documents.
4. Passing of special resolution and approving documents of private placement: The members of the company shall passing the resolution with the majority confirming the points stated in the offer letter and the process continuing in complies with the provisions of the act.
5. Filling Requirement with MCA: After passing the resolution in the meeting of the members, the company shall file the form MGT-14 with the Registrar in the period of 30 days, along the offer letter, minutes of the meeting, notice with the explanatory statement and other attachment as required. The authorized person appointed in the meeting shall circulate the offer letter to the allottees for the confirmation.
6. Allotment of securities: The Company need to make allotment process in the period of the 60 days of the receipt of the money. Also after receipt of the money, the company need to file Form Pas-3 with the ROC in the period of 30 days of the allotment. The attachment affixed includes List of allottees, board resolution of confirming the allotment and other required documents.
7. After allotment compliances: The Company shall maintain a complete record of private placement offers in Form PAS-5 at the registered office of the company or the place where the books of account kept. Also the company need to Issue Share Certificates to the eligible candidates and complying with the listing entity compliances, if the company is listed.
PENALTY FOR NON-COMPLIANCE OF PRIVATE PLACEMENT:
A company, its directors and promoters will be liable for a penalty if the company accepts monies or makes an offer in contravention of the Act and Rules. The penalty may extend to the amount involved in the invitation or offer or Rs.2 crore, whichever is higher. The company should also refund all monies to the subscribers within thirty days of the order imposing the penalty.
Also Read:
Private Placement under Section 42: Process, Provisions, Forms and Rules
Private Placement of Equity Shares – Requirements & Procedure
Difference between Preferential Allotment and Private Placement
Private Placement of Shares- Key Changes– Companies Amendment Bill, 2017
Form PAS-3 – Private Placement of Securities
Private Placement in Companies: Regulations, Conditions & Compliance
Private Placement V/S Preferential Allotment
Conditions & Steps for Private Placement: Companies act, 2013
Private Placement by unlisted public and private companies
Difference between Right issue, Private Placement & Preferential Allotment
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