Process of Private Placement by Unlisted Public Companies
Ekta
Ekta is a Fellow member of ICSI and is pursuing LLB (Hons). She has been an all India ranker in CS academics (both at the Foundation and Final level). She carries with her 10 years of experience in corporate governance and compliance. Presently, she is working with a reputed listed company
Private Placement
Section 42 of the Companies Act, 2013 (‘the Act’) governs the provisions w.r.t. Private Placement of securities.
Private Placement means:
• offer or invitation by a Company
• to subscribe to the securities
• to select group of persons
• through issue of Private Placement Offer Letter.
Process of Private Placement by Unlisted Public Companies
1. Call a Board meeting by giving 7 day prior notice to the Directors
2. Hold Board meeting to decide the name of Offeree, amount of offer, date of EGM for seeking approval of members for the same. The following drafts to be approved by the Board:
• Draft Private Placement Offer letter (PAS-4)
• Draft Notice of EGM
Note:
The offer of securities or invitation to subscribe securities, shall be made to not more than 50 persons in a single offer or not more than 200 persons in the aggregate in a financial year (excluding qualified institutional buyers and employees of the company being offered securities under ESOP). This restriction would be read for all the securities combined together in a Financial Year.
This provision 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 (2 of 1934) and
(b) housing finance companies which are registered with the National Housing Bank under the National Housing Bank Act, 1987 (53 of 1987)
3. File e-form MGT-14 within 30 days of Board Meeting for the aforesaid
4. Calling of EGM by giving atleast 21 clear days notice to the Members. The Explanatory Statement u/s 102 of the Companies Act, 2013 forming part of the EGM Notice shall specify the following:
(a) particulars of the offer including date of passing of Board resolution;
(b) kinds of securities offered and the price at which 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:
5. Hold EGM to seek approval of the members’ w.r.t. the following by passing a Special Resolution:
i) Quantum of amount to be raised and names of persons to whom invitation to subscribe to the securities shall be made.
6. File e-form MGT-14 for Special Resolution within 30 days of passing the Special Resolution
7. A private placement offer letter in form PAS-4, accompanied by an application form serially numbered and addressed specifically to the persons to whom the offer is made shall be sent to them, either in writing or in electronic mode, within thirty days of recording the names of such persons (i.e. within 30 days of EGM)
Note:
A company shall issue private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed and approved in form MGT-14 to the ROC.
8. Maintain complete record of persons to whom offer/invitation to subscribe to the securities shall be made in form PAS-5
9. Receive application monies which shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than the following pursuant to section 42(6) of the Act:
i) for adjustment against allotments
ii) for repayment of monies where the Company is unable to allot securities
10. Hold a BM for allotment of securities (securities should be allotted within 60 days of receipt of application money)
11. File e-form PAS-3 (return of allotment) with the ROC within 15 days of allotmentalong with a complete list of all security holders containing
i) The full name, address, Permanent Account Number and E-mail ID of such security holder;
ii) The class of security held;
iii) The date of allotment of security;
iv) The number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.–
Points to be noted:
1. Ensure that the issue is authorized by the Company’s Articles of Association;
2. No fresh offer or invitation to subscribe the securities shall be made by a Company unless allotments in respect to any previous offers /invitations have been completed or the offer/invitation has been withdrawn or abandoned by the Company;
The requirement of Shareholders’ Approval shall not apply in case of offer or invitation for. non-convertible debentures, where the proposed amount to be raised through such offer or invitation does not exceed the limit as specified in clause (c) of sub section (1) of section 180 and in such cases relevant Board resolution under clause (c) of subsection (3) of section 179 would be adequate:
In case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such offer or invitation exceeds the limit as specified in clause (c) of sub-section (1) of section 180, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitations for such debentures during the year.
3. The securities allotted by way of private placement shall be made fully paid up at the time of their allotment;
4. 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.
5. Penalty for non-compliance with section 42:
• If a company defaults in filing the return of allotment within 15 days from date of allotment, the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.
• 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 raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.