PRIVATE PLACEMENT OF SHARES
What is Private Placement:
Private Placement means any offer of securities or invitation to subscribe to securities to a select group of persons by a Company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified under Section 42 of the Companies Act, 2013.
Number of persons to whom the offer or invitation can be made:
Offer of securities or invitation to subscribe securities shall not be made to more than 200 persons in aggregate in a financial year.
If a Company whether Listed or Unlisted, makes an offer or invitation to subscribe to or allots or enters into an agreement to allot securities to more than 200 persons, no matter whether the:
a) payment for the securities has been received or not;
b) Company intends to list its securities or not on any of the recognised stock exchange in or outside India;
the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of Chapter III of the Companies Act, 2013.
The restriction of 200 persons would be reckoned individually for each kind of security that is equity shares, preference shares and debentures
Who are excluded from the category of persons:
a) Qualified Institutional Buyer as defined in the SEBI (ICDR) Regulations, 2009 as amended from time to time.
Qualified Institutional buyer as per SEBI (ICDR) Regulations 2009:
(i) a mutual fund, venture capital fund and foreign venture capital investor registered with the Board;
(ii) a foreign institutional investor and sub-account (other than a sub-account which is a foreign corporate or foreign individual), registered with the Board;
(iii) a public financial institution as defined in section 4A of the Companies Act,1956;
(iv) a scheduled commercial bank;
(v) a multilateral and bilateral development financial institution;
(vi) a state industrial development corporation;
(vii) an insurance company registered with the Insurance Regulatory and Development Authority;
(viii) a provident fund with minimum corpus of twenty five crore rupees;
(ix) a pension fund with minimum corpus of twenty five crore rupees;
(x) National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India published in the Gazette of India;
(xi) [insurance funds set up and managed by army, navy or air force of the Union of India;]
b) Employees of the Company who are being offered securities under the scheme of Employees Stock Option as per the provisions of Section 62(1)(b) of the Companies Act, 2013.
Restrictions specified under Private Placement:
a) No fresh offer or invitation shall be made unless earlier allotment is completed or withdrawn or abandoned by the Company.
b) All monies payable towards subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash.
c) Offer to be made only to such persons whose name is recorded prior to the invitation to subscribe and that such person shall receive the offer by name.
d) The value of such offer or invitation per person shall be with an investment size of not less than 20000/- rupees of face value of the securities.
e) Neither public advertisements will be released not any media, marketing or distribution channels or agents will be used to inform the public at large about such an offer.
Procedure for Private Placement:
1) Preparation of Private Placement Offer Letter:
a. A Company may make an offer or invitation to subscribe to securities through issue of Private Placement Offer letter in Form PAS-4.
b. Private Placement Offer letter shall be accompanied by the application form serially numbered and addressed specifically to the person to whom the offer is made.
c. Offer letter along with application form shall be sent to the person either in writing or in electronic mode.
d. Offer letter along with application form shall be sent to the person concerned within 30 days of recording the names.
2) Members Approval:
A Company shall not make a private placement unless the proposed offer of securities or invitation to subscribe the securities has been previously approved by the shareholders of the Company, by way of Special Resolution for each of the offers or invitations.
In case of offer or invitation for Non-Convertible debentures, 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.
3) Circulation of Offer Letter:
The offer letter and the application form serially numbered, addressed specifically to the proposed allottee shall be sent to him, either in writing or in electronic mode, within 30 days of recording the names of such persons as specified above.
No person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not so received shall be treated as invalid.
4) Maintenance of Record and filing with the Registrar prior to Alloment:
a. The Company shall maintain a complete record of private placement offers in Form PAS-5.
b. A copy of such record along with the Private placement offer letter in Form PAS-4 shall be filed with the Registrar and where the Company is listed with the SEBI within a period of 30 days of the circulation of the private placement offer letter.
5) Receive acceptance and payments:
All monies payable towards subscription of securities shall be paid through cheque or demand draft or other banking channels but not by cash. Further the payment to be made on subscription of securities shall be made from the bank account of the person subscribing to such securities.
In case of Joint holders, it shall be paid from the bank account of the person whose name appears first in the application.
6) Utilisation of money received on application
Money received on application under the Section 42, shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than:
a) for adjustment against allotment of securities;
b) for the repayment of monies where the company is unable to allot the securities.
7) Allotment of Securities:
A company making an offer or invitation under Section 42 of the Companies Act, 2013 shall allot its securities within 60 days from the date of receipt of the application money.
Return of Allotment of Securities under Section 42 shall be filed with the Registrar within 30 days of allotment in Form PAS-3 along with a complete list of all security holders to be prepared in the manner as specified under Rule 14 (4) of the Companies (Prospectus and Allotment of Securities) Rules, 2014
7) Repayment of Application Money
If the Company fails to allot securities within the specified time as mentioned above than the company needs to refund the money within 15 days from the date of completion of 60 days
If the company fails to repay the application money within the period as mentioned above than it shall be liable to repay that money with 12% rate of interest per annum from the date of expiry of the 60th day.
Offence or Penalty
If a Company makes an offer or accepts money in contravention of the provisions of Section 42 of the Companies Act, 2013, than:
1) Who shall be liable
2) Amount of penalty
a) amount involved in the offer or invitation; or
b) 2 crore rupees whichever is higher.
Tags :Corporate Law