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Prospectus And Allotment of Securities

Private Placement of Securities

Deination of private placement - Explanation I to Section 42 defines private placement as any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section.

In simple words, private placemet of securities means when securities are offered to a seclected group of persons other than public offer through private placemet offer letter. 

Approval of shareholders -

  • Private placement of securities shall be approved by shareholders of the company, by a special resolution for each of the offers or invitations.
  • The explanatory statement annexed to the notice of general meeting for shareholders’ approval shall contain the following disclosure -

   (a) particulars of the offer including date of passing of Board Resolution;

   (b) kinds of securities offered and the price at which such security is being offered;

   (c) basis or justification for the price (including premium,if any) at which the offer or invitation is being made;

   (d) name and address of valuer who performed valuation;

   (e) amount which the company intends to raise by way of such securities;

   (f) material terms of raising such securities ,proposed time schedule ,purposes or objects of offer,contribution being made by the promoters or directors either as part of the offer or separately in furtherance of objects;principle terms of assets charged as securities.

Maximum Number of persons to whom offer can be made -

provisions of Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 shall not be applicable to - 

(a) Non-banking financial companies which are registered with the Reserve Bank of India under the Reserve Bank of India Act,1934;and

(b) housing finance companies which are registered with the National Housing Bank under the National Housing Bank Act,1987 

if they are complying with regulations made by the Reserve Bank of India or the National Housing Bank in respect of offer or invitation to be issued on private placement basis.

Private placement cum application letter/ private paclement offer letter -

  • A private placement offer cum application letter shall be in the form of an application in Form PAS-4. 
  • Serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode within 30 days of recording the name of such person.

Mode of Payment -

  • All the payments have to be made either by cheque or demand draft or other banking channel and not by cash. 
  • However, a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar

The allotment of securities under privete placemet -

  • The allotment of securities under privete placemet shall be made with in 60 days from the date of receipt of the application money. 
  • If the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and
  • If the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% p.a. from the expiry of the sixtieth day. 

Subscription money to be kept in a separate bank account -

As per Section 42(6) of Companies Act, 2013 monies received on application received by the company shall be kept in a separate bank account in a scheduled bank and shall not be utilised 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.

Return of allotment for Private placement -

  • Company making any allotment of securities, shall file with the Registrar a return of allotment within 15 days from the date of the allotment 
  • In Form PAS-3 to ragistrar.
  • Along with complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.
  • Penalty for defaults in filing the return of allotment - Where a company defaults in filing the return of allotment within the period mentioned above, the company, its promoters and directors shall be liable to a penalty for each default of 1000 rupees for each day during which such default continues but not exceeding 25 lakh rupees.

Record of private placement - 

The Company shall maintain a complete record of private placement offers in Form PAS-5

Other Terms And Conditions -

  • A company making private placement shall issue private placement offer and application to identified persons, whose names and addresses are recorded by the company.
  • The private placement offer and application shall not carry any right of renunciation.
  • A private placement shall be made only to a select group of persons who have been identified by the Board.
  • the company shall not make any fresh offer or invitation through private placement unless any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
  • No advertisement for private placemet to inform the public at large about such an issue.
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Company Law

Chapter's Name:

1. Introduction to Company Law
2. Incorporation of Companies
3. MOA and AOA of Company and Its Alteration
4. Prospectus And Allotment of Securities
5. Share and Share Capital

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