Procedure for Private Placement

Aakanksha Singhal

Aakanksha Singhal

Published on: Dec 6, 2020

Khushboo Sharma

Updated on: Sep 30, 2023

★★★★★(64 Rating)

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Introduction

Private Placement means 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.

A private placement shall be made only to a selected group of persons who have been identified by the Board, whose number shall not exceed fifty or such higher number i.e. not more than 200, excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option, in a financial year.

Applicable Provisions:

1. Section 42, & 173 of Companies Act, 2013
2. Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014
3. Regulation 29, 30, 44 and 46 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Mandatory Requirements

1. Company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar.
2. No fresh offer or invitation shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.
3. Company issuing securities through Private Placement shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.
4. Shareholders’ approval by way of Special Resolution is required except 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 section 180(1)(c) then a Board resolution would be adequate.

Following Procedure is to be followed

1. Intimation to the Stock Exchange [Regulation 29 of the SEBI (LODR) Regulations, 2015]
   Listed Companies shall give prior intimation to the stock exchange about the meeting of the Board of Directors in which the proposal for issue of securities through Private Placement is due to be considered at least 2 working days in advance, excluding the date of intimation and date of meeting.
2. Convene a Meeting of Board of Directors [As per section 173 & SS-1]
   • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
   • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
   • Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
     • to consider and approve issue of securities through private placement.
     • to approve Private Placement Offer Letter.
     • to identify the group of persons to whom Private Placement shall be made.
     • to fix day, date, time and venue for holding General Meeting of the Company.
     • to approve the draft notice of General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013.
     • to authorize the Director or Company Secretary to sign and issue notice of the General Meeting and to do such acts, deeds and things as may be necessary to give effect to the Board’s decision.
   • Listed Company shall submit the disclosure of such appointment to the Stock Exchange as soon as reasonably possible and but not later than the following:
     • thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken
     • twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity
     • twenty four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity, from the end of the Board Meeting and update the same on the website of the company within 2 working days. [Regulation 30 & 46(3) of the SEBI (LODR) Regulations, 2015]
   • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
3. File Form MGT-14 with ROC
   Company shall file copy of Board Resolution to ROC in Form MGT-14 within 30 days of passing of resolution in Board Meeting.
4. Obtain Shareholders’ Approval
   • By Convening a General Meeting, OR
   • By Passing a Resolution by Postal Ballot. [Refer the Procedure for Passing of a Resolution by Postal Ballot]
   Convene General Meeting [Section 96, 100 and SS-2]
   • Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
   • Notice will be sent to all the Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
   • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
   • Hold the General Meeting on fixed day and pass Special Resolution for issue of securities through Private Placement.
   • Listed Companies shall disclose the proceedings of General Meeting to the Stock Exchange within 24 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days. [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
   • Listed Companies shall submit to the stock exchange the details of the voting results within two working days from the conclusion of the meeting and post the same on the website of the Company. [Regulation 44 of the SEBI (LODR) Regulations, 2015]
   • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the Procedure for Preparation and Signing of Minutes of General Meeting].
5. File Form MGT-14 with ROC
   Company shall file Form MGT-14 with the ROC within 30 days of passing Special Resolution in General Meeting along with fee as specified in the Companies (Registration offices and fees) Rules, 2014 and with the following attachments
   • Certified True Copies of the Special Resolution passed along with Explanatory Statement.
   • Copy of the Notice of meeting sent to members along with all the annexure
   • Shorter Notice Consent Letters from the members in case the General Meeting was convened at shorter notice.
   • Copy of Attendance Sheet of General Meeting
   • Any other attachment as may be applicable.
6. Open Separate Bank Account
   Company shall open a separate Bank Account in a Scheduled Bank for keeping the monies received on the application.
7. Preparation and Filing of Private Placement Offer Letter
   • Company shall record the names of the persons to whom the securities through Private Placement shall be offered.
   • Company shall make a Private Placement Offer Letter in Form PAS-4 and shall send these offer letters either in writing or in electronic mode within 30 days of recording of names of such person with an application form serially numbered to the person to whom it is made.
   • Company shall maintain a complete record of persons to whom the private placement offer letter is sent in Form PAS-5.
8. Receive the Amount of Subscription
   • Company shall receive the amount of subscription through cheque or demand draft or other banking channels from the Bank Account of the person subscribing to securities except in case of issue of securities for consideration other than cash.
   • Company shall keep the record of the Bank account from where such payments for subscriptions have been received.
9. Allotment of securities by Private Placement
   After closing the Private Placement Offer, Company shall
   • Convene a Board Meeting, OR
   • Pass a Board Resolution by Circulation [Refer the Procedure for Passing a Resolution by Circulation] within 60 days from the date of receipt of the application money.
   Convene a Meeting of Board of Directors [As per section 173 & SS-1]
   • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
   • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
   • Hold a meeting of Board of Directors of the Company and pass the necessary Board Resolution
     • to consider the allotment of securities through Private Placement.
     • to authorize the Director or Company Secretary to file the return of allotment with the ROC.
   • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
10. Make necessary Entries in Registers
    • Private Company shall make necessary entries in the Register of Members, if the shares are not allotted in demat, in Form MGT-1 within 7 days of the Board Meeting in which the allotment of Equity share was approved.
    • Private Company shall make necessary entries in the Register of debenture holders in Form MGT-2 within 7 days of the Board Meeting in which the allotment of Debentures was approved.
11. File Return of Allotment with ROC
    Company shall file return of allotment within 15 days from the date of allotment in Form PAS-3 with the Registrar of Companies (ROC) along with following attachments
    • List of allottees, separate list for each allotment is mandatory
    • Copy of Board or Shareholders’ resolution approving allotment of securities is mandatory in all cases
    • Complete record of private placement offers and acceptances in Form PAS-5 is mandatory in case of private placement
    • Any other information can be provided as an optional attachment(s).
12. Issue the Relevant Certificates
    • Private Companies which has not allotted shares in demat format shall issue the certificate of shares allotted in Form SH-1 within a period of 2 months from the date of allotment to the respective shareholders after payment of stamp duty to the respective state Government.
    • Private Companies which has not allotted Debentures in demat format shall issue and deliver the debentures certificates within a period of 6 months from the date of allotment.