All about Issue of Shares through Private Placement - Procedure and Steps

Private Placement’ means any offer of securities or invitation to subscribe securities to a selected group of persons by a company through issue of a private placement offer cum application letter (Form PAS-4) and which satisfies the specified conditions.

Important Provisions

Following are the key provisions relating to private placement:

• A company shall not make any private placement unless the same has been approved by special resolution
• The said offer cannot be made to more than 200 persons in aggregate in a financial year, excluding Qualified Institutional Buyers (QIBs) and employees offered securities through ESOP.
•  The minimum investment size shall not be less than Rs. 20,000/ of face value of the securities per person and payment for subscription shall be made through the bank account of the subscriber only.
• Neither public advertisements will be released, nor any media, marketing or distribution channel or agents will be used to inform the public at large about such an offer.
•  The Company shall maintain complete record of Private Placement Offer in Form PAS-5.

Offer to be made to only to known specified persons

A Company making private placement shall issue a private placement offer cum application letter in Form PAS-4 to identified persons, whose names and addresses are recorded by the company. It may be noted that private placement offer and application shall not carry any right of renunciation.

Allotment of Securities

• The Company shall allot securities within 60 days from date of receipt of application money. If it does not allot within 60 days, then application money shall be repaid, without interest, within 15 days after expiry of 60 days. Further if the Company does not pay money after the aforesaid period, the company is liable to repay the money with interest at 12 per cent per annum from expiry of 60th day.

• Whenever a company makes any allotment of securities, it shall file with the Registrar of Companies, a return of allotment within 15 days of allotment in Form PAS-3, including the complete list of all security-holder, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

• It may be noted that a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the ROC.

Penalty

• If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is lower.

• Further the company is also required to refund all monies to subscribers within a period of thirty days of the order imposing the penalty.

Procedure for Private Placement

• Step 1: Hold Board Meeting for;

1. Approval of Private Placement of Securities
2. Approval of PAS-4 (Offer Letter)
3. Call for EGM (Extra Ordinary General Meeting)

• Step 2: Issue Notice for EGM

1. Notice of atleast 21 clear days required.
2. Send Notice to all Directors, Auditors, Members of the Company

• Step 3: Hold EGM for;

1. Pass Special Resolution by approval of members for Private Placement of Securities.

• Step 4: Open Separate Bank Account

1. Open Separate Bank Account of the Company for receipt of monies for the securities to be issued by Private Placement

• Step 5: Circulation of Offer Letter

1. Offer Letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made.
2. Offer Letter will be sent either in writing or in electronic mode.
3. Issue Offer Letter within 30 days of General Meeting/ recording the name of such person(s).

• Step 6: File Form MGT-14 within 30 days of passing of special resolution.

Attachments:

1. CTC of Special Resolution along with explanatory statement
2. Copy of Notice of meeting send to members

• Step 7: File Form GNL-2 within 30 days of circulation of offer letter.

Attachments;

1. PAS-4 (Offer Letter)
2. PAS-5 (Complete record of Private Placement)

• Step 8: Hold Board Meeting for allotment of Shares

1. Pass resolution for allotment of shares

• Step 9: File Form PAS-3 for allotment of Shares

Form PAS-3 to be filed within 15 days of allotment of shares

Attachments:

1. List of Allottees
2. Board Resolution or allotment of shares

• Step 10: Issue of share certificate and update minutes book and register

1. Issue Share Certificate in Form SH-1 within 2 months from the date of allotment off shares.

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