Private Placement Under Section 42 of the Companies Act, 2013 – Complete Procedure, Conditions, Documents & Penalties
Private placement under Section 42 of the Companies Act, 2013 allows companies to raise capital by issuing securities to a select group of identified individuals, capped at 200 persons per security type in a financial year, excluding QIBs and employees under ESOS. It requires prior approval from the Board via a Board Meeting and Special Resolution at a General Meeting, supported by a draft offer letter (Form PAS-4) and records of the offerees (Form PAS-5). Payments must be made through banking channels to a separate account, and allotment of securities must occur within 60 days, failing which refunds are due with 12% interest. Private placement ensures no public solicitation, mandates minimum investment of Rs.20,000 per person, and requires strict compliance with documentation, including valuation reports, resolutions, and investor consent. Non-compliance attracts penalties, including fines for the company, directors, and promoters. Debenture issues follow additional conditions under Section 180(1)(c).
Page Contents
- Step-by-Step Procedure for Private Placement
- Conditions for Valid Private Placement
- Private Placement of Debentures – Additional Requirements
- Documents Required for Private Placement
- Penalties for Non-Compliance
- Board Resolution Format – Private Placement
- Special Resolution Format – Private Placement
- Draft PAS-4 – Offer Letter Format
- Draft PAS-5 – Record of Private Placement
Step-by-Step Procedure for Private Placement
| Sr. No. | Particulars | Additional Requirement | Time Limit |
| i. | Convene BM to take approvals | √ Issue of Securities under section 42
√ Number of securities to be issued √ Pricing of the securities according to valuation Report √ Prepare Draft offer of letter in form PAS-4 √ Date, Time, Place of General meeting for shareholder approval |
– |
| ii. | MGT-14 | Attachment – Copy of BR. | Within 30 days of BM |
| iii. | Identifying persons to whom the offer is to be made | Either before GM or after GM | |
| iv. | Notice of GM along with
explanatory statement |
Explanatory statement shall disclose:
√ Particulars of offer + date of passing BR √ Kind of securities and offer price √ Basis or justification of price √ Name and address of valuer who performed valuation √ Amount which company intents to raise √ Material terms of raising such securities |
21 days before GM |
| v. | Pass SR in GM | To issue securities under private placement | |
| vi. | MGT-14 | Attachment – Copy of SR | Within 30 days of SR |
| vii. | PAS-5* | Record the names. | |
| viii. | PAS-4* | Offer letter to identified persons | Within 30 days of PAS-5 |
| ix. | Open Separate Bank in a
Scheduled Bank |
Confirm the receipt and sitting of funds in Share application money account | |
| x. | 2nd BM | For allotment of securities | |
| xi. | Allotment to be completed | Within 60 days of receipt of money | |
| xii. | PAS-3 | Complete list of allotters (with full name, address, no. of securities and any other information). | Within 15 days of
allotment of |
| xiii. | FC-GPR | In case of foreign investors | Within 30 days of allotment |
*PAS – 4 & PAS-5 as per Companies (Amendment) Act, 2017, are required to be maintained by the Company and are no longer required to be filed with the ROC.
Conditions for Valid Private Placement
√ No person other than selected by the Board can participate in the issue.
√ It is to be noted that the limit of 200 people is per security for one financial year (200 for Equity, 200 for Preference and 200 for Debenture holders)
√ It shall be made only to identified persons whose name and address are recorded in the application.
√ No public announcement, no right to renounce.
√ The value of offer or invitation per person shall be with an investment size of not less than Rs. 20,000 of face value of securities.
√ Payment for application by cheque, demand draft, or any other banking channel but not by cash.
√ Payment shall be made from the bank account of the person subscribing for securities. 1′ Money shall be kept in different bank account and shall be utilized for adjustment against allotment and repayment in case of fallout only.
√ Allotment of the securities shall be made within 60days from receipt of money. If the Company is not able to allot, then the Company shall repay money within 15 days of the expiry of 60 days. If the company fails to repay the money, it shall be liable to repay with interest @12% p.a
√ The company cannot make a fresh offer or invitation unless the previous allotment with respect to any securities is completed/ withdrawn/abandoned by the Company. 1′ The company cannot utilize money unless allotment is done and PAS-3 is filed.
Private Placement of Debentures – Additional Requirements
When borrowing is within Section 180(1)(c) limits
If the Company is issuing Non-Convertible Debentures through Private Placement and the amount of issue does not exceed section 180(1)(c) limits [ i.e. Money borrowed + to be borrowed does not exceed the aggregate of Paid-up capital + securities premium + Free Reserves, apart from temporary loans]
Board Resolution passed u/s 179(3)(c) is enough.
When borrowing exceeds Section 180 limits
However, if the amount to be borrowed exceeds the limits mentioned u/s 180, a single Special Resolution can be passed for the whole financial year.
Documents Required for Private Placement
√ Valuation report
√ Private placement offer cum application letter in Form PAS-4
√ Certified copy of board resolution approving the private placement offer.
√ Notice of general meeting along with the explanatory statement of special resolution.
√ Records of private placement offers in form PAS-5.
√ Application form along with subscription money from all the proposed investors.
√ List of allottees containing full name, address, PAN and e-mail ID, class of security, date of allotment and number of securities held, nominal value and amount paid on such securities.
√ Letter of Consent from all the proposed allotees.
Penalties for Non-Compliance
For default in filing PAS-3 –
Company, Promoters and Directors – Rs. 1000/day during which the default continues but exceeding Rs. 25,00,000.
For contravention of section 42 –
Company, Promoters and Directors – The amount raised through private placement or Rs. 2 crore whichever is lower.
Board Resolution Format – Private Placement
CERTIFIED COPY OF RESOLUTION PASSED IN THE BOARD MEETING OF DIRECTORS OF____ LIMITED HELD ON____ DAY OF ____, 2023 AT THE REGISTERED OFFICE AT___________
“RESOLVED THAT in accordance with the provisions of section 42, 62(c) and other provisions, applicable, if any, of the Companies Act, 2013 read with Companies (Prospectus and allotment of Securities) Rules, 2014 and the Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification thereto or re-enactment thereof for the time being in force) subject to the approval of the Shareholders of the Company, consent of the Board of Directors be and is hereby accorded to offer and issue up to ________ Equity Shares of Rs. 10/- (Ten) each at par aggregating upto Rs.__________ /- (In words) through private placement to the (Proposed allottees Name).
RESOLVED FURTHER THAT the said Equity Shares shall rank pari-passu with the existing Equity Shares in all respects.
RESOLVED FURTHER THAT any of the Directors of the Company be and is hereby authorised for and on behalf of the Company to deal, negotiate, accept, modify etc. the terms and conditions in relation to the said Issue and to sign, issue and circulate the Private Placement Offer Letter (the “PPOL”) in Form PAS-4 prescribed under the Act and such other ancillary documents and to submit the said PPOL and such other necessary E-Forms with Ministry of Corporate Affairs/Registrar of Companies by affixing digital signature thereto and to do all such acts, deeds, matters and things which may deem necessary in this regard.
RESOLVED FURTHER THAT necessary entries in respect of issue and allotment of aforesaid shares shall be made in the Register of Members.”
Certified to be True Copy
For____________ Limited
______(Name of Director)
DIN:__________
Special Resolution Format – Private Placement
CERTIFIED COPY OF RESOLUTION PASSED IN THE ANNUAL GENERAL/ EXTRA- ORDINARY GENERAL MEETING OF MEMBERS OF______ LIMITED HELD ____, 2023______AT THE REGISTERED OFFICE AT___________
“RESOLVED THAT pursuant to the provisions of Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 and such other provisions (including any statutory modifications and enactments thereof) as may be applicable for the time being in force, consent of the members of the Company, be and is hereby accorded for offering, issue and allotting__________ (No of shares) Equity Shares at a face value of Rs. ____ (face value per share) amounting to Rs._______ (nominal value) and the draft letter of offer in PAS- 4 for issue of such securities and record of such Private Placement offer in PAS-5, be and is hereby approved.
RESOLVED FURTHER THAT Mr. ______(name and designation of authorized person) of the Company be and is hereby authorized to sign and circulate the letter of offer PAS-4 along with the application form to _____ (name of offeree) to the said offerees, whose name(s) is/are recorded in PAS-5 i.e. Record of Private Placement.
Certified to be True Copy
For________ Limited
_____(Name of Director)
DIN:__________
Draft PAS-4 – Offer Letter Format
Draft PAS-5 – Record of Private Placement
Form PAS-5
(Section 42(7) and Rule 14(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014)
Record of a private placement offer to be kept by the company
Name of the Company:
Registered Office of the company:
CIN:
DETAILS OF PRIVATE PLACEMENT OFFER:
Date when approval of the relevant authority (board or the shareholders, as the case may be) obtained for the current Private placement Offer Letter:- Date of Extra Ordinary General Meeting ________, 2023 (Approval from the shareholders by Special Resolution).
Amount of the Offer: Rs._______ (Rupees_________ only)
Date of circulation of private placement offer letter: ________, 2023
Following details (in a tabulate statement) of the persons to whom private placement offer letter has been circulated:-
| Name | |
| Father’s Name | |
| Address | |
| Phone Number | |
| Email id | |
| Initial of the Officer of the company designated to keep the Record |
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