Private Placement

Private Placement

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OVERVIEW

As per the definition under Explanation II to Sub Section 1 of Section 42 of the Companies Act, 2013 Private Placement means any offer of securities or invitation to subscribe securities to a select group of persons by a Company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.

According to Section 42 of the Companies Act, 2013 Allotment cannot be done to more than 200 persons (Excluding Qualified Institutional Buyers and Employees who have been given securities under ESOP Scheme) in a financial year. If this goes beyond the given limit, the company will have to declare it a public issue and follow the procedure for the same. Currently, if a company, listed or unlisted, offers securities to more than 200 persons during a year, even if it does not receive money, to any person in India or abroad with the intention of getting its Securities listed on a recognized stock exchange whether in India or abroad, shall be deemed to be a public issue and the Company will have to comply with the provisions of Public issue.

PROCEDURE

 

Company planning to make Private Placement has to first pass a special resolution in the general meeting of the Company.However, in case of Non-Convertible Debentures(NCD), it will be sufficient if the Company passes a special resolution once in a year for all the Private Placements to be made by the for the NCD during the year.[Rule 14(2)].
Next, the Company has to issue a Private Placement letter of offer to the Identified persons by the Board to whom the allotment is to be made. [Companies Amendment Act, 2017].The Company also has to keep the records of the same and file the details with the ROC within 30 days from the date of issue of Private Placement letter of offer. [Rule 14(3)].
Once the Company receives the allotment money, the Company shall allot the Securities within 60 days and if it fails to do so, then refund the money within the next 15 days. If the Company fails to do so, then interest @12% will be charged from the expiry of 60th day.
The Company has to file a return of allotment within 15 days of allotment in Form PAS-3. Company cannot utilize the Application money until it has filed Return of allotment with the ROC.

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