By Nidhi Agrawal
Private placement means the offer of securities or invitation to subscribe to the securities of the company to a selected group of persons, other than by way of public offer.
Private placement is usually on a one to one basis, where company needs to raise usually a small amount of capital.It is a cost effective and efficient way of raising funds by the company.
Section 42 of Companies Act, 2013 regulates the Private Placement.
We have tried to lucid the Provisions of Section 42 of Companies Act, 2013:-
- Private Placement offer shall be approved by the shareholders of the company by passing Special Resolution in a General Meeting.
- Company to offer securities through private placement needs to issue a Private Placement Offer Letter in Form PAS-4.
- The offer of securities or invitation to subscribe to the securities of the company shall be made to maximum 200 persons in the aggregate in a year.
- The limit of 200 persons shall not include:
- Qualified Institutional Buyers
- Employees of the company to whom securities are issued under ESOP’s.
- Only the prescribed mode shall be used towards payment of money for the subscription of securities. They include:
- Cheque
- Demand Draft
- Any other banking channel
- Cash payment shall not be made to the company by the subscribers of securities.
- Allotment shall be made within 60 days of receipt of application money.
- If the company do not allot the securities with 60 days, then it shall refund the amount within 15 days failing to which will fetch an interest of 12% P.A. from the expiry of the 16th day.
- The monies received by the company must be kept in a separate bank account with a scheduled bank and shall be used only for:
- adjustment against allotment of securities,
- for the repayment of monies where company is not able to allot the securities.
- The company shall maintain a proper record of all the persons to whom offer or invitation is sent in Form PAS-5.
- No public advertising or any kind of utilization of media, marketing or distribution channel or agents is allowed by the company for offering securities.
- Company shall within 15 days of allotment shall file Return of Allotment in Form PAS-3 to the Registrar with complete list and information of security-holders.
- A company cannot make two private placement offer simultaneously. Company before sending the private placement offer letter must make sure that no private placement is pending with the company.
- If the company makes any offer or invitation without complying Section 42, such offer or invitation shall be treated as public offer and all the provisions of the respective acts such as the Companies Act,2013, Securities and Exchange Board of India Act,1992 and Securities Contract (Regulation) Act, 1956 shall be complied with.
- On Contravention of filing of Return of Allotment in Form PAS-3, the company, promoters and directors of company shall be liable for penalty of Rs. 1000 for each day upto a maximum of Rs. 25 Lakhs.
- On Contravention of Section 42 , the company, promoters and directors of company shall be liable for penalty of amount involved in private placement or Rs. 2 crore whichever is lower and the company shall refund all monies to subscribers within a period of 30 days of the order imposing the penalty.
Private Placement is the best and effective way for companies to raise funds in case where the subscribers are limited .
In Case of any queries or requirements contact:-
Team
Compliance Arena
8447773833
info@compliancearena.in