Private Placement – Section 42 of Companies Act 2013

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  • Last Updated on 3 December, 2021
Private placement is a cost effective way of raising capital without going public. “Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42 of Companies Act, 2013.

1. Who can issue Private Placement?

A public company or private company can issue shares on private placement basis.

1.1 Maximum number of person to whom private placement can be made

Private placement can be made to maximum 50 persons or higher number prescribed in a financial year, excluding (a) Qualified Institutional Buyer (QIB)(b) employees under stock option scheme under section 62(1)(b) of Companies Act, 2013.

1. 2 Maximum limit for making offer for private placement

 

Offer or invitation can be made to not more than two hundred persons in the aggregate in a financial year, excluding offer to QIB and Employees stock option. This restriction would be reckoned individually for each kind of security that is equity share, preference share or debenture [i.e. 200 for equity shares, 200 for preference shares and 200 for debentures]. However, unless allotment with respect to one kind of security is completed, another kind of security shall not be issued.  For example, if equity shares are issued first, preference shares or debentures cannot be issued unless allotment of equity shares is completed.  This restriction does not apply to issues by NBFC registered with RBI and housing finance companies registered with NHB (National Housing Bank). If RBI or NHB has not specified similar regulation, the provision of Companies Act shall apply. Companies Act 2013

2. What is the time limit for making allotment?

Allotment must be made within 60 days. If not made within 60 days, amount should be refunded within 15 days. Otherwise, interest @ 12% will be payable. The money shall be kept in a separate bank account, either for allotment or for repayment. The offer shall be made to specific persons by name and complete information and record of such offer shall be filed with ROC within 30 days of circulation of private placement offer. No advertisement through media, marketing or distribution channels or agents shall be made of such offer. Return of allotment with complete details of security holders shall be filed with Registrar.

3. What is the minimum value of offer?

 The value of such offer or invitation per person shall be with an investment size of not less than Rs 20,000 of face value of the securities. This restriction does not apply to issues by NBFC registered with RBI and housing finance companies registered with NHB (National Housing Bank). If RBI or NHB has not specified similar regulation, the provision of Companies Act shall apply.

3.1 Payment only from bank account of person making application:

The payment for subscription to securities shall be made from the bank account of the person subscribing to such securities only. The company shall keep the record of the Bank account from where such payments for subscriptions have been received. Monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application – Rule 14(2)(d) of Companies (Prospectus and Allotment of Securities) Rules, 2014.

3.2 Record of private placement 

The company shall maintain a complete record of private placement offers in Form PAS.5. A copy of such record along with the private placement offer letter in Form PAS.4 shall be filed with the Registrar with prescribed fees, within 30 days from date of the private placement offer letter. If the company is listed, copy of such record shall also be submitted to SEBI, within 30 days from date of the private placement offer letter – Rule 14(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014.

3.3 Return of allotment 

A return of allotment of securities under section 42 (private placement) shall be filed with the Registrar within 30 of allotment in Form PAS.3 with fee. The return should be filed along 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.

3.4 Pre-certification of form 

The PAS.3 form filed by company (other than OPC and small company) shall be pre-certified by practicing CA, CMA or CS. (form filed by OPC or small company is not required to be certified by practicing CA, CMA or CS).

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