Private Placement Section 42- Summary


PRIVATE PLACEMENT – IMPORTANT PROVISIONS

  • Section 42 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules,2014
  • To be made only to a select group of persons as identified by the Board whose number not to exceed 200 in a financial year;
  • It does not have any right of renunciation;
  • The Company shall not utilize the money, unless the return of allotment has been filed with the RoC
  • The subscription money can either be paid by cheque or demand draft or other banking channel BUT NOT BY CASH;
  • Approval from shareholders by way of Special Resolution is required for Private Placement (excepting non-convertible debentures)
  • Private Placement Offer cum Application Letter (PAS-4) to be-
    • circulated among the investors;
    • serially numbered, 
    • addressed specifically to the person to whom the offer is made, 
    • sent to investors, either in writing or in electronic mode, within thirty days of recording the name of such person pursuant to sub-section (3) of section 42
PROCEDURAL ASPECTS
  • Board and Shareholders (Special Resolution) to be obtained;
  • Explanatory statement to contain the following disclosures:
    • particulars of the offer including date of passing of Board resolution;
    • kinds of securities offered and the price at which security is being offered:
    • basis or justification for the price (including premium,if any) at which the offer or invitation is being made;
    • name and address of valuer who performed valuation;
    • amount which the company intends to raise by way of such securities;
    • 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.
  • Form MGT-14 to be filed with the RoC before issue of PAS-4 [Rule14(8)]
  • Private Companies to file MGT-14 for Board or Special Resolution for approval obtained u/s 179(3)(c) (proviso to Rule14(8)).
  • Investor to remit the funds from his bank account;
  • The amount so received to be kept by the Company in a separate Bank account maintained in a Scheduled Bank;
  • Each time Company makes an issue, they have to open a separate Bank account, old one can't be used.
  • The allotment to be made within 60 days of receipt of money by the Company. If not allotted, the refund to be made to the investor within 15 days from the lapse of 60 days;
  • Failure to refund will attract a penal interest of 12% p.a. from the lapse of 60 days.
  • The Company to file return of allotment (Form PAS-3) within 15 days of allotment and can use the money only if the Form PAS-3 has been filed.
  • The Company also to maintain a complete record of private placement offers in Form PAS-5;
  • Equity, Preference Shares as well as Debentures can be issued in this manner;
  • In case of different securities issued, the maximum limit of 200 persons in a FY will be applicable for each of such securities,so issued.
This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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