PROCEDURE AND CHECKLIST OF PRIVATE PLACEMENT OF SHARES UNDER COMPANIES ACT 2013
Provisions related to Private Placement of Shares by a Company are prescribed different places under the companies act 2013 such as Sections 23, 42, 62(1)(c), 110 and 117 of the Companies Act, 2013 and rules made hereunder.
“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”
The 2013 Act primarily prescribes four modes of increasing share capital:
- Public issue,
- Rights issue,
- Bonus issue and
- Private placement.
To protect and maintain the shareholders atavism and transparency in a Company, the Companies Act 2013 has prescribed various procedural requirements for making a Private Placement of Shares by Companies. Few key requirements can be summarized as under:
- Private Placement Offer can be made to not more than 200 people. One thing to expressly mention here is that, this limit is applicable not to the number of shareholders who are allotted the shares, but is applicable to the invitation to subscribe being made.
- This limit excludes Qualified Institutional Buyers and Employees and the limit of 200 people is calculated individually for each kind of security. It would then seem that, due to this restriction, the issuing company cannot make a public announcement of such offers.
- The share application form has to be numbered and addressed specifically to the person to whom the invitation is being by the Private Placement Offer Letter.
- The value of the Offer per person SHALL NOT BE LESS THAN RS 20,000/- of the ‘face value’ of securities.
- And the payment mode for subscribing shares under the private placement should be through the bank channel of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received.
- No cash transaction is permissible.
- The money received as applicable money for allotment of Shares shall be kept in a separate bank account of the company.
- A valuation report by a Registered Valuer is required.
- A Shareholder’s special resolution shall be required to approve the Private Placement Offer and this resolution should be acted upon within 12 months. At any given point in time, there should be only one active offer for each kind of security.
- Shares have to allotted within 60 days of receiving share application money from the allottee, Otherwise from the 75th day, the share application monies have to be repaid. In the event of failure to repay, interest at 12% pa has to be paid. If there is a Foreign Direct Investment, RBI has allowed for 180 days for allotment. Here, there is an obvious conflict between the RBI regulation which talks of 180 days under the Foreign Exchange Management Act, 1999 and the Companies Act, 2013, which talks of 60 days’ time frame for allotment of shares.
- Copies of the Private Placement Offer Letters along with the Records of Private Placement Offer Letters have to be filed with the Registrar of Companies within 30 days from the date of circulation (i.e. date of the Offer letter).
- Again, after allotment of the securities, within 30 days, a return of allotment has to be filed with the ROC in PAS-3.
- To save from misuse of the share application money the Act prescribes that the share application money received has to be kept in a separate bank account and utilized only for the allotment or repayment.
- Non-compliance can lead to a penalty of Rs 2 crores or the amount involved in the offer, whichever is higher.
Detailed Procedure of Private Placement of Shares under the Companies Act 2013
- Check Provision in Articleregarding Private Placement
- Call Board Meeting:
- To Prepare Offer Letter that is PAS-4
- Make Proposal for Private Placement
- Prepare list of persons to whom option will be given
- Call EGM
- Call EGM:
- Pass SR– will be valid for 12 month
- If not completed PP in 12 Month pass another SR
- Approve Draft Offer Letter (PAS-4)by SR
- File MGT-14with ROC Attachments: – Notice of EGM – CTC of SR – Minutes
- Issue offer letter in PAS-4within 30 days of record of name of persons:
- Application form serially numbered
- Address to the persons to whom the offer is made
- Prepare complete record of Private Placementin PAS-5
- File PAS-4 + PAS-5with ROC within 30 days of issue of offer letter in GNL-2
- Make Allotment of shares within 60 daysof receipt of Money from the persons to whom right was given.
- Called BM for allotment of shares
- File PAS-3 with Roc within 30 daysif Allotment. Attachments: – List of Allottees – BR for allotment of share
- File Form MGT-14along with Resolution pass in Board meeting for allotment of shares.
- Issue Share Certificates.