PRIVATE PLACEMENT

As per section 23 of Companies Act, 2013, private companies can issue securities through :-

1. by way of right issue or bonus issue or
2. through Private Placement

“Private Placements” 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 Private Placement offer letter which satisfies the condition specified in this section.

Section 42 of Part II of Chapter III deals with Private Placement stating the following :-

1. Companies can make Private Placement through issue of Private Placement offer letter.
2. Companies can offer securities through private placements up to two hundred persons in a Financial year.
3. Company shall not make fresh issue of any kind of securities unless previous issue of securities is completed.
4. Company should accept consideration for issue of shares only through cheque and demand draft .
5. Company shall allot securities with in 60 days of receipt of application money.
6. Company shall make offer through private placement only to select group of people whose names are recorded in the Board meeting, authorizing issue of shares through Private Placement.
7. If the company, contravenes any of the provisions of this section, than private placement offer shall be deemed as Public offer attracting all the provisions which is applicable on Public offer.
8. Money received on application under this section shall be Kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than -
   a) for adjustment against allotment of securities; or
   b) for the repayment of monies where the company is unable to allot securities.

Procedure for Private Placement offer letter :-

1. Company shall hold Board meeting to give in principle approval to issue shares through Private Placement. Company shall record the names of investors to whom shares shall be allotted on Private Placement and shall give approval to call for call General Meeting to take shareholders Approval for issuing shares through Private Placement.

2. Company shall send 21 days notice to all shareholders. Explanatory statement accompanied with notice to the shareholders shall state basis or justification for the price at which at which the offer for invitation is being made. Valuation report taken from registered valuers should be annexed with the notice.

3. In an Extra – ordinary General Meeting, Company shall pass special resolution for issue of shares through Private Placement and this special resolution should be filed with Registrar of Companies within 30 days in form MGT 14.

4. After taking special resolution in General Meeting, Company shall send invitation to subscribe for securities through issue of a Private Placement Offer Letter in form PAS-4. Application form serially numbered with a name of addressee written on it should be sent along with Form PAS – 4. Form PAS 4 should be sent only to those investors whose name is recorded for issue of shares though Private Placement. Only the addressee to whom Application form along with Letter of offer is sent shall be allowed to invest through the Application form sent to him. It should be stated in the Application form that payment for subscription of securities should be made by the addressee/investor through their own Bank Account.

5. Company shall hold Board Meeting within 60 days of receipt of money. In this Board Meeting, Company shall allot securities to the investor and within 30 days of allotment shall file return of allotment with Registrar Of Companies through Form PAS – 3 along with complete list of securities

6. Company shall maintain a complete record of Private Placement offers in form PAS - 5