PROCEDURE FOR ISSUE OF SHARES THROUGH PRIVATE PLACEMENT
INTRODUCTION
Private
placement can be explained as a means of raising capital by the companies
without going for public issues. Public Issues like Initial Public Offering and
Further Public Opening are means of raising capital by the companies.
DEFINITION
A private
placement is a sale of stock shares or bonds to pre-selected
investors and institutions rather than on the open market. It is an alternative
to an initial public offering (IPO) for a company seeking to raise
capital for expansion.
Condition
for Private Placement under the Companies Act, 2013
- Maximum Number of Persons: An offer for private
placement can be made to not more than 200 people in a financial year.
- Minimum amount of offer for an individual: The value of the Offer per
person shall not be less than INR 20,000 of ‘face value’ of securities.
- Persons to whom an offer can be made: All offers shall be made
only to those persons whose names are recorded by the company prior to the
invitation to subscribe and allotments can be made only to such persons
who have been addressed and the offer is made along with the Offer letter.
- Mode of Payment: All monies payable towards subscription of
securities under this section shall be paid through cheque or demand draft
or other banking channels but not by cash.
- No advertisement of offer: No company offering
securities under private placement shall release any public advertisements
or utilize any media, marketing or distribution channels or agents to
inform the public at large about such an offer.
- Bank Account: The application money received from the
private placement offer shall be deposited in a separate bank account in a
scheduled bank.
- Minimum gap between two offers: A company can come with a new
offer after completion of the earlier offer. However, no fresh offer or
invitation shall be made unless the allotments with respect to any
previous offer or invitation have been completed or been withdrawn or
abandoned by the company.
- Allotment: Securities are to be allotted within 60 days from
the date of receipt of the application money and if the company fails to
allot securities, has to repay the application money to the subscribers
within 15 days from the date of completion of 60 days and in case the
company fails to repay the application money within the aforesaid period,
the company is liable to repay application money along with interest at
the rate of 12% p.a. from the expiry of the 60thday.
- Every
unlisted public company making any offer for issue of any securities,
before making such offer has dematerialized of its securities held by its
promoters, directors, key managerial personnel in accordance with
provisions of the Depositories Act, 1996 and regulations made there under.
Prior
checking points:
·
Whether authorized share capital is
sufficient for issue of shares through private placement and if authorized
capital not enough, then first alter the capital clause of the memorandum of
association of the company.
·
Whether articles of association authorise
for issue of shares through private placement and if not, then first alter the
articles of association to include provisions for issue of shares through
private placement.
·
Confirm that shares which are to be issued
through private placement are fully paid up shares
The provisions and procedures relating to issue of shares through private
placement are as follows:
|
S. No. |
Particulars |
|
1.
|
Prepare a list
of persons (not exceeding 50 in each offer and not more than 200 in the
aggregate in a financial year for each kind of security) to whom offer may be
made. |
|
2.
|
Prepare notice
of board meeting along with draft resolution(s) to be passed in the board
meeting. ·
Send notice of board meeting to all the directors— Ø at least 7 days
before the date of board meeting or Ø in such manner
as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of
the Secretarial Standard-1. |
|
3.
|
Convene board
meeting for passing the following resolutions: ·
Offer and issuance of shares to certain persons
through private placement. ·
Appointment of Registered Valuer. ·
Authorisation to director/company secretary to sign
the documents. ·
Fix up the day, date, time and venue for calling
general meeting. ·
Approval of notice for calling of general meeting
for passing special resolution for issuance of shares through private
placement. |
|
4.
|
Prepare draft
minutes of the board meeting and circulate, within a period of fifteen days
from the date of conclusion of that meeting, to all directors, by hand/speed
post/registered post/courier/e-mail or by any recognised electronic means,
for their comment(s). |
|
5.
|
Obtain Valuation
Report from the registered valuer appointed by the company and the relevant
date of the Valuation Report shall be at least 30 days prior to the date on
which the general meeting of the company is scheduled to be held. |
|
6.
|
Prepare and file
e-Form MGT-14 for board resolution with the Registrar of Companies
within 30 days of passing of board resolution. |
|
7.
|
Send notice of
general meeting to all directors, shareholders, auditors, secretarial
auditors and Debenture Trustee, if any, of the company at least 21days before
the date of general meeting. |
|
8.
|
Ensure that the
explanatory statement annexed to the notice of general meeting as mentioned
in the prescribed rules. |
|
9.
|
Convene general
meeting and pass special resolution for offer and issue of shares through
private placement. |
|
10.
|
File e-Form
MGT-14 with the Registrar of Companies within 30 days of passing of
special resolution. |
|
11.
|
Prepare draft
minutes of shareholders’ meeting and for finalisation, send the draft minutes
to the chairman of that meeting. |
|
12.
|
Prepare private
placement offer letter-cum-application form. |
|
13.
|
·
Prepare notice of board meeting along with draft
resolution(s) to be passed in the board meeting. ·
Send notice of board meeting to all the directors Ø at least 7 days
before the date of board meeting or Ø in such manner
as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of
the Secretarial Standard-1. |
|
14.
|
Convene board
meeting to pass the following resolutions: (i) approval of
draft private placement offer letter-cum- application form. (ii) opening of
separate bank account with the scheduled bank for depositing the share
application money. (iii) The company
shall maintain a complete record of private
placement offers in Form PAS-. 5. (iv) noting of
name and other details of proposed allotees. |
|
15.
|
Prepare draft
minutes of the board meeting and circulate, within a period of fifteen days
from the date of conclusion of that meeting, to all directors, by hand/speed
post/registered post/courier/e-mail or by any recognised electronic means,
for their comment(s). |
|
16.
|
·
Send letter of offer to proposed allottees together
with application form, serially numbered within 30 days of recording the name
of such persons and maintain a
complete record of private placement offer letter in PAS-5 form. ·
Ensure that private placement offer letter-cum-
application form has not included any clause regarding renunciation of
rights. ·
Ensure that private placement offer letter-cum- application
form is issued only after registration of requisite board resolution and
special resolution with the jurisdictional Registrar of Companies. |
|
17.
|
Open separate
bank account for keeping subscription money and ensure that money received
from only those persons whose name is addressed in form. |
|
18.
|
·
Prepare notice of board meeting along with draft
resolution(s) to be passed in the board meeting. ·
Send notice of board meeting to all the directors Ø at least 7 days
before the date of board meeting or Ø in such manner
as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of
the Secretarial Standard-1. |
|
19.
|
Convene board
meeting, within 60 days of receipt of application money, to pass following
resolutions: ·
Allotment of shares on private placement basis. ·
Authorise to issue share certificate ·
Filing of return of allotment in e-Form PAS-3. ·
Authorise to make necessary entries in the register
of members |
|
20.
|
Prepare draft
minutes of the board meeting and circulate, within a period of fifteen days from
the date of conclusion of that meeting, to all directors, by hand/speed
post/registered post/courier/ e-mail or by any recognised electronic means,
for their comment(s). |
|
21.
|
File return of
allotment with the Registrar of Companies in e-Form No. PAS 3 along
with a list of all security holders within 15 days of allotment. |
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