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Private placement by a private company

1870 views 4 replies

Dear all,

Management of private company wants to issue offer document for issue of shares to new selected shareholders under private placement basis.

As per Companies Act, the Board empowers to allot shares on receipt of share application money. But, whether Board empower to issue offer document without getting approval from existing shareholders. If Board issued offer document to new selected shareholders, will that be valid under Companies Act.?

1) Do the company need to obtain share valuation certificate from chartered accountant , because it is going to be issued to new shareholders. Please clarify.
2) If Board issued shares to new shareholders without consent from existing shareholders, will there be any objection from existing shareholders?

Kind Regards,
Ramesh

Replies (4)

Provisions of Section 81(1A) pertaining to private placement of shares are not applicable to private companies.  Hence subject to the provisions of the Articles, Board has power to issue fresh shares on private placement basis.  Approval of shareholders is not required.  Valuation report is not required as per Companies Act.  You have to refer to your Articles for the same.

 

 

Thanks a lot for your reply.

But. the management do not want to issue shares to the existing shareholders and is expecting new share holders. If that is that case, the present shareholders may object in future. So what would be your view, if the company get approval from members (at EGM) for this proposed private placement.

Also, if the management wants to issue private letter of offer to a selected group of new investor, will this be permitted by law. Please note that our Articles have permission to issue shares subject to provisions of companies Act. 

Kind Regards,

Ramesh

 

Yes, you can take approval of members in EGM even if not required under the Act or the Articles.  Companies Act does not restrict issue of shares to non- members in case of private company so long as total number of members after issue does not exceed 50.

 

 

Thanks a lot Mr Agarwal for your valuable views.

Regards,

Ramesh


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