Private placement

Dhiraj kumar (Employed) (427 Points)

14 November 2013

What is issue of share through private placement & preferential allotment ?

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Procedure for issue of shares by private placement

1. To ensure that the issue is within the authorized share capital of the company; otherwise to increase the same by following the proper procedure.

2. If the company is an unlisted public company, then follow the provisions of Unlisted Public Companies (Preferential Allotment) Rules, 2003.

3. Call a Board Meeting after giving notice to all the directors of the company as per section 286 to fix up the date, time, place and agenda for a General Meeting to pass an Ordinary or Special Resolution as the case may be.

4. In case of a public company, a Special Resolution or an Ordinary Resolution followed by the Central Government’s approval under Section 81 should be passed unless the allotment is made within two years from the formation of company or within one year from the allotment of shares made for the first time after formation, whichever is earlier.

5. In case of first allotment, the provisions of Section 70 should also be complied with.

6. In case of a private company, to pass an Ordinary or a Special Resolution, if the Articles so require; otherwise the Board can issue the shares.

7. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing the Special or Ordinary Resolution as the case may be with suitable Explanatory Statement.

The explanatory statement to the notice for the general meeting in terms of Section 173 of the Companies Act, 1956 shall contain:

(i) the object/s of the issue through preferential offer,

(ii) intention of promoters/ directors/ key management persons to subscribe to the offer,

(iii) shareholding pattern before and after the offer,

(iv) proposed time within which the allotment shall be complete

(v) the identity of the proposed allottees and the percentage of post preferential issue capital that may be held by them.

(vi) in case of a preferential allotment requirements specified in these regulation.

A listed company shall not make any preferential issue of equity shares, Fully Convertible Debentures, Partly Convertible Debentures or any other instrument which may be converted into or exchanged with equity shares at a latter date if the same is not in compliance with the conditions for continuous listing.

A listed company shall not make any preferential allotment of equity shares, FCDs, PCDs or any other financial instrument which may be converted into or exchanged with equity shares at a later date unless it has obtained the Permanent Account Number of the proposed allottees.

8. Hold the General Meeting and pass the resolutions. If an Ordinary Resolution under Section 81 is passed, proceed to obtain the Central Government’s approval in accordance with that section.

9. If any Special Resolution is passed, file the same with the concerned ROC in e-Form No. 23 within thirty days of the passing after paying the requisite fee prescribed under Schedule X to the Act.

Action on any resolution passed at a meeting of shareholders of a company granting consent for preferential issue of any financial instrument shall be completed within a period of 15 days from the date of passing of the resolution. If such resolution is not acted upon within the said period, a fresh

consent of the shareholders will have to be obtained.

10. Receive applications by private negotiations and complete proceedings regarding allotment of shares.

11. If shares are to be allotted on direct/private placement to Central/ State Government, their agencies, public financial institutions and Mutual Funds, obtain their agreement to the proposed investment.

12. Proceed to complete other formalities such as issue of allotment letters, share certificates, filing of allotment return, making entries in various registers etc.

13. File return of allotment in e-Form No. 2 within thirty days from the date of allotment with necessary details and enclosures with the concerned ROC after paying the requisite fee as prescribed under Schedule X to the Act.

14. Send allotment letters or share certificates as the case may be within three months from the date of allotment to the allottees.

15. If the company is a listed company then in addition to the aforesaid requirements, the provisions of Chapter VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 are also required to be followed.