As per the provisions contained under the Companies Act, 2013, mainly there are four ways specified under the act to increase the share capital. The specified four modes under the companies act, 2013 are Public issue, Bonus issue, Right issue and the Private Placement. Hence, one of the modes to increase the capital base of the company is the Private placement of shares. Hence, it is very important to understand the details of the same. In this article, we look at the provisions relating to private placement under Companies Act, 2013.
The term "Private Placement" has been defined under section 42 of the Companies Act, 2013 as:
"Any offer to a group selected persons by the company to subscribe its securities via issuing a private placement offer letter and satisfying the conditions specified in section 42 of the Companies Act,2013. One of the conditions specified under section 42 of the act is that such offer or invitation shall not be made to more than 50 persons or as may be prescribed in a particular financial year"
Therefore, one of the main criterion to increase the share capital through a private placement of shares is that the private placement offer shall not be made to more than 50 persons in a financial year.
The amount to be received by the company from the subscriber towards the subscription of securities should not be in cash. Therefore, the subscription money should be received only through cheque/demand draft / other banking channels.
The money received by the company against the issue of shares through private placement should be kept in a separate bank account. In addition to this, the company is also required to maintain a record of such payments received. The offer value of the private placement per person should not be less than 20,000 rupees (face value of securities) and the amount can be utilised only for allotment of the securities. No cash transaction is permitted.
Allotment of shares has to be made within a period 60 days from the date of receipt of the application form. Where the allotment has not been made within the specified time i.e. within 60 days, the application money needs to be refunded within 15 days. If the company fails to repay the application money within 15 days, interest @12% per annum needs to be paid along with the application money.
All the offer of the private placement is required to be made only to the persons whose names are recorded before the invitation to subscribe by the company. Further, the company shall keep a complete record of all the private placement offers in form PAS-5.
Previously, the company needs to maintain private placement offer letter in Form PAS-4 along with the names of the offeree and file the same with the RoC (Registrar of Companies) within 30 days from the date of circulation which includes the date of the offer letter. However, with the amendment in Companies, Act 2013, there is no such requirement to file Form PAS-4 and PAS-5 with the RoC and SEBI.
Following are the documents required for Private Placement of Shares
Following are the list of Documents required to be prepared for the issue of Equity shares through private placement
- Copy of the BM along with the Draft Offer Letter, Draft Notice of General Meeting and Explanatory Statement, Proposed List of allottees
- PAS-5 with the detailed list of allottees.
- Proposed allottee's consent letters
- Copy of resolution passed by the members at the meeting along with an Explanatory Statement and approved Offer Letter.
- A report of the valuation as on the date of Allotment by a SEBI registered Merchant Banker or a Chartered Accountant.
- Copy of the outcome of BM for the Allotment of shares.
I hope this write up you a brief understanding of Private Placement of Shares.
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