Private Placement: Section 42 of Companies Act 2013

Ayush (Executive ) (6432 Points)

05 April 2023  

Section 42 of the Companies Act 2013 deals with private placement of securities by companies. Private placement refers to the process of raising capital by issuing securities to a selected group of investors, rather than offering them to the public at large.

According to Section 42, a company can issue securities through private placement by way of a special resolution passed in a general meeting. The securities can only be issued to a maximum of 200 persons in a financial year, excluding qualified institutional buyers and employees of the company.

The company must also comply with the following conditions while issuing securities through private placement:

  1. The offer of securities must be made only to persons whose names are recorded by the company prior to the invitation to subscribe.

  2. The offer must be made only to those persons who have given a written consent to receive the offer.

  3. The securities must be issued within 60 days from the receipt of the application money.

  4. The company cannot invite or accept any money as subscripttion unless it has filed the offer letter with the Registrar of Companies.

  5. The company must use the application money received only for the purpose for which the securities are being issued.

  6. The company must allot the securities within 15 days from the date of receipt of the application money.

  7. The securities must be issued in dematerialized form, except in cases where the securities are issued to fewer than 200 persons.