Private Placement- Section 42

Rule 14 of The Companies (Prospectus and Allotment of Securities) Rules, 2014

“Private Placement” means any offer of securities or invitation to subscribe securities to a selected 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 in this section.

CONDITIONS OF PRIVATE PLACEMENTS:

1. Approval of shareholders by way of special resolution is required for Private Placement.
2. Offer to be made in PAS-4 only to a selected group of persons as identified by the board not exceeding 200 excluding qualified institutional buyers and employees of Company under employee stock option scheme.
3. No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
4. All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not in cash.
5. A company making an offer or invitation under this section shall allot its securities within sixty days from the date of Application money received, or it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the sixtieth day.
6. Company shall not do any advertisement of these offer.
7. Return of allotment to be filed with to ROC within 15 days of allotment of securities.
8. The Company shall not utilize the money, unless the return of allotment (PAS-3) has been filed with ROC.

PROCEDURE FOR PRIVATE PLACEMENT:

1. Issue a notice of Board Meeting to all the directors 7 days before the meeting.

2. Hold the Board Meeting:

• Identify the persons to whom private placement offer letters are to be issued.
• Pass a Board Resolution for approval of offer-cum-application in PAS-4
• Adopt Valuation Report for shares.
• Adopt Valuation Report for valuation of consideration (In case of allotment of shares other than cash)
• Pass a Board Resolution for opening of separate bank account in scheduled bank.
• Calling of Extra Ordinary General Meeting.
• Approving the notice of Extra Ordinary General Meeting.

3. File MGT-14 with Registrar within 30 days of passing of Board Resolution.

4. Hold Extra-Ordinary General Meeting (EOGM):

• Place offer cum application before members for approval.
• Pass special resolution for allotment of shares/ allotment of shares other than consideration as the case may be.

5. File MGT-14 with Registrar within 30 days of passing special resolution.

6. Send offer cum application in PAS-4 within 30 days of recording names of allottees.

7. Once the consideration amount is received, call board meeting by giving a notice not less than 7 days before the meeting.

8. Hold Board Meeting:

• Place list of allottees before the board
• Pass Board resolution for allotment of securities/ allotment of securities other than consideration

9. File PAS-3 with Registrar within 15 days of passing board resolution for allotment of shares.

10. Issue of Share Certificate in SH-1 within 2 months from the date of allotment, in case of private company.

OTHER POINTS TO BE CONSIDERED:

1. The company shall make the following disclosures in Explanatory Statement to be annexed to the notice of general meeting pursuant to section 102 of the Companies Act, 2013:

• Any default in annual filing;
• Details of applicant;
• Date of passing board resolution;
• Object of the Issue;
• Total number of securities to be issued;
• Relevant date with reference to which the price has been arrived at;
• Price at which the securities are to be allotted;
• Base of which price has been calculated;
• Valuation report on valuation of shares;
• Valuation report on valuation of consideration (if applicable);
• Class of persons to whom the allotment is proposed to be made;
• Intention of promoters, directors or KMP to subscribe to the offer;
• Proposed time within which the allotment shall be completed;
• Justification for the allotment proposed to be made for consideration other than cash together with valuation report;
• Pre and post issue shareholding pattern of the company.

2. The company to maintain a complete record of private placement offers in PAS-5

3. Letter of offer to be serially numbered.

4. No right of renunciation will be available.

The author can also be reached at csneharedekar@gmail.com

Disclaimer: Please note that the above article is based on interpretation of related laws, which may differ from person to person and is not legal advice.