Private placement is an invitation or offer to a select group of persons (identified persons) to subscribe the securities of a company. Section 42 of the Companies Act, 2013 (“Act”) read with the Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 covers all the provisions pertaining to private placement of securities. A detailed process of Private Placement of securities has been provided hereunder for your ready reference.
|1.||42 + Rule 14||Valuation Report
Obtain Valuation Report from the Registered Valuer to fix the issue price.
|2.||173(2)||Notice of Board Meeting
Issue notice for convening the Board meeting pursuant to the provisions of Section 173(2) of Act. As per Section 179(3)(c) of the Act, power to issue securities can only be utilized in the Board Meeting of the Company.
|3.||179(3)||Conduct Board Meeting
Pass Board Resolution for the following –
In case of issue of Non-Convertible Debentures (NCD), check the borrowing limit under Section 180(1)(c) of Act, 2013. If issue of NCDs exceeds the limit prescribed under Section 180(1)(c) of Act, 2013 than approval of shareholders shall be obtained through Special Resolution. Otherwise, there is no need to pass Special Resolution. [Proviso to Rule 14(1)]
|4.||Proviso to Rule 14(8), 117||File MGT 14 pursuant to passing of Board Resolution for issue of securities within 30 days of passing Board Resolution.|
|5.||101, Rule 14(1)||Notice of Extra-Ordinary General Meeting (EGM)
– The Board shall call shareholders meeting and send requisite disclosures in the Explanatory Statement attached to the notice of the meeting.
– The date of General Meeting shall be conducted atleast 30 days after the Relevant date mentioned in the Valuation Report.
– Following disclosures shall be made in the explanatory statement:
(a) particulars of the offer including date of passing of Board resolution;
(b) kinds of securities offered and the price at which security is being offered;
(c) basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
(d) name and address of valuer who performed valuation;
(e) amount which the company intends to raise by way of such securities;
(f) material terms of raising such securities, proposed time schedule, purposes or objects of offer, contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects; principle terms of assets charged as securities.
|6.||Rule 14(1)||Conduct Extra-Ordinary General Meeting and pass Special Resolution for approving the private placement offer of securities.|
|7.||Proviso to Rule 14(8), 117||File MGT-14 pursuant to passing of Special Resolution within 30 Days.
|8.||Proviso to Section 42(6)
|Open separate bank account in a scheduled bank for receiving application money. Such money shall not be utilised for any purpose other than-
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.
|9.||Rule 14(3), 14(8)||Send private placement offer cum application letter [PAS 4] to the proposed applicants and which shall be serially numbered and addressed specifically to the proposed investors to whom the offer is made and shall be sent to them in writing or in electronic mode within 30 days of recording their name pursuant to Section 42(3).
As per Rule 14(8), a company (private and public) shall issue PAS 4 only after the relevant special resolution or Board resolution has been filed with the Registrar.
|10.||Rule 14(4)||Maintain records of private placement offers in Form PAS-5.|
|11.||42(4), Rule 14(5)||Every proposed investor willing to subscribe to the offer shall apply through the application form issued to such person along with subscription money to be paid either by cheque or demand draft or other banking channel as may be specified in the offer letter but not by cash.
The payment shall be made for subscription from the bank account of the person subscribing to such offer.
|12.||Rule 14(6)||Prepare a List of Allotees containing-
(i) the full name, address, PAN and E-mail ID of Allottees;
(ii) the class of security;
(iii) the date of allotment;
(iv) the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.
|13.||42(6)||A Board Meeting shall be conducted for allotment of shares within 60 days from the date of receipt of the application money.
· Approve list of allottees
· Approve allotment of shares
· Authorize for issue of share certificate.
If the company is unable to allot such securities within 60 days, the application money shall be refunded within the next 15 days, if the company also failed to refund the said application money, the company shall be refunded such amount along with the interest of @ 12% p.a.
|14.||Rule 14(6)||File Form PAS-3 within 15 days of passing of Board Resolution for allotment of securities.
A Company shall not utilize monies raised through private placement unless allotment is made and the return of allotment is filed by the company with the Registrar.
|15.||56 (4) (b)&(d)||Issue of certificates:
Issue share certificates in Form SH-1 within 2 months from the date of allotment; or
Issue debentures certificates within a period of 6 months from the date of allotment.
|16.||Sec 32 of Indian Stamp Act, 1899||Stamp duty shall be paid by the Company within 30 days from the date of issue of share certificate.|
|17.||88||Update Register of Members/Debenture Holders
Update the Register of Members, in case shares are in physical form, in Form MGT-1 within 7 days of allotment of shares in the Board Meeting.
Update Register of Debenture Holders in Form MGT-2 within 7 days of allotment of debentures in the Board Meeting.
There are certain additional compliances in case of private placement of preference shares and debentures. The relevant sections of those compliances have been given below:
In case of issue of preference shares
- Section 55 of the Act, 2013 in case of private placement of preference shares and
- Section 62 of the Act, 2013 in case of private placement of convertible preference shares
In case of issue of Debentures
- Section 71 of the Act, 2013 in case of private placement of debentures and
- Section 62 of the Act, 2013 in case of private placement of convertible debentures
- Section 180(1)(c) of the Act, 2013 w.r.t limits upto which NCDs can be raised without shareholders’ approval