What is a Private Placement?
The term private placement refers to the invitation or any offer to subscribe or issue of securities to a selected group of persons by a company through private placement offer. This is a way other than the public offer. Rather it is offer-cum-application that solely satisfy the conditions given in section 42 of the companies act. Although there are some other ways also through which the shares can be issued such as the right issue of shares and Preferential Allotment of shares. But in this article, we will discuss only the Amendments in Privately Shares Placement u/s section 42. Along with this if you want to register your company then click here:
There are certain conditions given under Amendments in Privately Shares Placement as per section 42 of the companies which has to be followed while placing shares privately. Following are the Amendments:
- The maximum number of persons: In a financial year, private placement offer letter can be sent only to 200 persons or less. Out of those 200 persons, Qualified Institutional Buyers and employers are excluded. Moreover, the limits of those 200 persons are calculated individually for each kind of security. This offer must be made to the selected group of a person who is identified by the board of Directors.
- Private placement offer letter conditions: The offer can be made to the identified persons in a prescribed form. For example, the Name and Address of the persons shall be recorded by a company in a full a prescribed manner.
- The right of Renunciation: Private placement offer is not having any right of renunciation. But the person whose name is written in the offer letter can apply for the subscription.
- Mode of payment for subscription money: Th mode of payment shall be either by cheque or demand draft/ other banking channels. But it can not be made by cash.
- Allotment money use: the company is not entitled to use the private placements money until allotment is made and the return of allotment( form PAS-3) is filed with the Registrar as prescribed by sub-section (8). This is the major change by Amendment Act, 2017. For more details, you can follow our blog and get your company registered.
- No further offer until the previous completion: No invitation of security will be made until and unless allotments that were made earlier will be completed.
- Separate Bank Account: A separate bank account would be opened for keeping the money received from placing shares which will be used only for repayment.
- To whom the offer will be made: Persons whose names are recorded by the company prior to the invitation to subscribe shall only be given an offer.
- No advertisement of offer: Under this section, Companies offering securities are not entitled to make advertisements through media, marketing strategy, distribution channels or any agents to inform a large number of the public about such an offer.
- Days within share shall be issued: Allotment process should only be completed within 60days of receiving of money.
- If fail to allot within 60 days: In case, there is a failure of allotment within 60 days then till 75th day the money must be repaid. If the allotment is not made timely then there will be a liability of interest at 12%p.a.
- A minimum deviation between two offers: there is no provision for the gap between the two offers in the Amendments in Privately Shares Placement so far but a company can get into the new offer as soon as it is done with the previous one.
- Maximum offers: there is no condition in the act that provides the maximum number of offers in a financial year. Accordingly, it may come with a private placement of shares any number of time in a financial year. But offer made will be to 200 people in a financial year.
To know more about Sections notified under companies amendment act 2017, Company registration you can go through our website: Legal Raasta
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Companies Amendment Act 2017- Summary of Rules Amended
The Companies (Meetings of Board and its Powers) Amendment Rules, 2018
The Companies (Registration of Charges) Amendment Rules, 2018