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:
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The offer of securities must be made only to persons whose names are recorded by the company prior to the invitation to subscribe.
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The offer must be made only to those persons who have given a written consent to receive the offer.
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The securities must be issued within 60 days from the receipt of the application money.
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The company cannot invite or accept any money as subscripttion unless it has filed the offer letter with the Registrar of Companies.
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The company must use the application money received only for the purpose for which the securities are being issued.
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The company must allot the securities within 15 days from the date of receipt of the application money.
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The securities must be issued in dematerialized form, except in cases where the securities are issued to fewer than 200 persons.
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