PRIVATE PLACEMENT
The Companies Act, 2013 provides various options to issue Securities (Shares, Debentures or any other type of Securities). One of these options is Private Placement.
Private Placement – Section 42 of Companies Act 2013
Section 42 of the Companies Act, 2013 (‘Act’) provides that a company can make a private placement to a selected group of persons. Private placement by companies means offering its securities or inviting to subscribe its securities for a select group of persons other than by way of a public issue through a private placement offer letter.
1. Private Placement Offer Letter
Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (‘Rules’) provides the regulations relating to the private placement by companies. The Rules state that the company should offer or invite to subscribe its securities through a private placement offer letter in Form PAS-4.
All private placement offers should be made only to those persons whose names are recorded by the company before sending the invitation to subscribe. The persons whose names are recorded will receive the offer, and the company should maintain a complete record of the offers in Form PAS-5.
A company should send a private placement offer letter accompanied by an application form serially numbered and addressed either in writing or electronic mode, specifically to the person to whom such an offer is made. The company should send the private placement offer letter to the specific person within thirty days of recording the person’s name.
The person to whom the private placement offer letter is addressed in the application form should accept the offer. The company should file the complete information of the offer with the Registrar of Companies (‘ROC’) within 30 days of circulating the private placement offer letter.
2. Maximum Limit of Private Placement
The select persons to whom the company can make a private placement should not exceed 50 persons or such a higher number prescribed by the Rules in a financial year. The limit of fifty persons excludes the qualified institutional buyers and employees of the company who are offered securities in the financial year under a scheme of employees stock option as per Section 62 of the Act.
The Rules state that the offer or invitation of private placement should not be more than two hundred persons in the aggregate financial year. The limit of two hundred persons will exclude the qualified institutional buyers and employees of the company offered securities in the financial year under a scheme of employees stock option as per Section 62 of the Act.
The value of the private placement offer or invitation for each person should be of an investment size of Rs.20,000 of the face value of the securities. However, the limit of the maximum number of select persons and value of private placement does not apply to the following:
- Non-banking financial companies registered under the Reserve Bank of India Act, 1934.
- Housing finance companies registered with the National Housing Bank under National Housing Bank Act, 1987.
Mode of Payment of Private Placement
Subscription money paid by demand draft or cheque or other banking channel and not by cash.
Allotment of Private Placement
A company making an invitation or offer of private placement should allot its securities within sixty days from the receipt of the application monies for the securities. The company should repay the application money to the subscribers within fifteen days from the completion date of sixty days if the company is unable to allot securities within sixty days
When the company fails to repay the application money within fifteen days after completion of 60 days, it is liable to repay the subscription money with an interest rate of 12% per annum from the expiry of the sixtieth day.
The company must keep the application money in a separate bank account in a scheduled bank and should not utilize it for any purpose other than the following:
For adjustment against allotment of securities.
For repaying application monies where the company is unable to allot securities.
Record of Private Placement Offers
The company should maintain a complete record of private placement offers in Form PAS-5.
Return of Allotment of Private Placement
The company must file the return of allotment of securities with the ROC, after allotting the securities, within thirty days of allotment in Form PAS-3 fees as provided in the Companies (Registration Offices and Fees) Rules, 2014 having the following information:
3. Complete list of all security holders.
Full name, address, PAN, and E-mail of such security holders.
Class of security held.
Date of allotment of security.
Number of securities held, the amount paid and nominal value on such securities.
Particulars of the consideration received if the securities were issued for consideration other than cash.