PRIVATE PLACEMENT OF SECURITIES

process to issue shares through placement

MEANING:

Private placement of securities is one of the modes to raise funds. The term 'private placement' means any offer of securities or invitation to subscribe (purchase) securities to a selected group of persons by a company. The offer or invitation to subscribe securities on a private placement basis can not be made to more than 200 persons (excluding QIB and employees) in a financial year.

It was decided in Sahara India Real Estate Corpn. V .SEBI [2012] that if an unlisted company made an offer of shares or debentures to more than the threshold limit of 200, it is mandatory for the company to follow 'public offer' norms and SEBI has proper jurisdiction over such issue.

PRE-ISSUE COMPLIANCE:

  • If it is an unlisted company, then make sure the entire holding of securities of its promoters, directors, KMP has been dematerialized.[September 10, 2018 MCA Notification]
  • Make sure proposed issue must be as per Article of Association (AOA)
  • Authorized Capital of the Company is quite enough that after issue capital must be within the limit of Authorized Capital
  • Obtain Valuation Report

PROCESS:

  1. Hold a Board Meeting to list the group of persons [maximum persons shall not exceed 200] to whom the securities shall be privately placed. Apart from this, consider the terms & conditions of such issue and approve the draft notice to call EGM
  2. Prepare private placement offer cum application in Form No. PAS-4.
  3. Hold EGM to pass a special resolution for the issue of securities on private placement basis.
  4. File a copy of the special resolution in Form No. MGT.14 within 30 days of passing such resolution.
  5. PAS-4 shall be sent to selected person within 30 days of recording their name [Rule 3]. Further, this PAS-4 must be circulated once  special resolution or board resolution wherein contents of PAS-4 have been finalised has been filed with ROC [Rule 8].
  6. Once the consideration is received in a separate bank account, allotment of securities must be done within 60 days.
  7. File Form No. PAS.3 a return of allotment of securities within 15 days of allotment.

PLEASE NOTE:

When small companies raise funds generally they are in so hurry that they don't ask investors about the source of funds which is very important because it may be possible an Indian company is investing in another Indian company. Prima facie it seems that it is a domestic investment and FEMA provisions are not required to be followed but suppose the Indian Company which is investing in another Indian Company has FDI then such investment would be considered as a downstream investment and you have to follow respective FEMA provisions in this respect.

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