Private placement procedure in a Private Limited Company in India
The private placement procedure in a private limited Company in India is governed by Section 42 of the Companies Act, 2013 and the relevant rules under the Companies (Prospectus and Allotment of Securities) Rules, 2014. Not more than 200 persons in a financial year (excluding QIBs and ESOP allottees). Private placement must not involve any general solicitation or advertisement. Money must come from the bank accounts of the subscribers. Company, promoters, and directors may face hefty penalties for violations. Below is a detailed step-by-step guide:
- Board Meeting: Convene a Board Meeting to:
- Approve the issue of securities through private placement.
- The Approve the preparation of the Offer Letter (Form PAS-4).
- Approve calling a general meeting of shareholders (if necessary, for special resolutions).
- Identify the persons to whom the securities will be offered.
- General Meeting: Convene a General Meeting of Shareholders to pass a Special Resolution under Section 42 and 62(1)(c) of the Companies Act, 2013, authorizing:
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- The issue of securities.
- Number of securities and their price.
- Terms and conditions of the offer.
- Filing of MGT-14: File the Special Resolution with the Registrar of Companies (RoC) in Form MGT-14 within 30 days of passing the resolution, if required.
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Preparation of Offer Letter (PAS-4):
Prepare the Offer Letter (Form PAS-4), ensuring it includes:
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- Terms of the offer.
- Purpose of the offer.
- Details of securities being offered.
- Number of persons to whom the offer is being made.
- The offer letter must be issued to not more than 200 persons in a financial year (excluding QIBs and employees offered securities under ESOP). Offer must not constitute a public offer.
- Maintenance of Records (PAS-5): Maintain a complete record of the private placement offer in Form PAS-5, including details of allottees, their PAN, and the number of securities allotted.
- Opening a Separate Bank Account: Open a separate Bank account to receive the subscription money. Ensure the subscription money is paid through cheque, demand draft, or banking channels and not in cash.
- Allotment of Securities: Convene a Board Meeting to:
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- Approve the allotment of securities within 60 days of receiving the application money.
- Issue share certificates to the allottees within 60 days of allotment.
- File a return of allotment in Form PAS-3 with the RoC within 15 days of allotment.
- Filing Form PAS-3 : File Form PAS-3 (Return of Allotment) with the following attachments:
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- Certified copy of the Board Resolution for allotment.
- List of allottees, including name, address, and PAN.
- Certified copy of the Special Resolution (if applicable).
- Details of the securities issued.
- Updating Statutory Registers: Update the following statutory registers: Register of Members (for shares), Register of Debenture Holders (for debentures), Register of Charges (if applicable).
- Issue of Share Certificates: Issue share certificates to the allottees within 2 months from the date of allotment. Stamp duty on share certificates must be paid as per the applicable state laws.
Post-Compliance: Ensure compliance with ongoing filing requirements and maintain transparency in the records.
Key Note on Private Placement Procedure:
- Definition and Key Provisions Related to Private Placement Procedure: Private Placement: Offering or inviting to subscribe to securities to a select group of persons, excluding public offers, through a Private Placement Offer Letter (Form PAS-4). Cannot involve public advertisements or marketing channels.
- Securities Covered: Equity shares, preference shares, Debentures.
- MGT-14 Filing: Mandatory within 30 days of passing the board resolution.
- Existing Shareholders: Permitted as it qualifies as an offer to a select group.
- 200 Persons Limit: Applies separately to each type of security.
Limits and Exemptions on Private Placement Procedure:
- Maximum Subscribers: Up to 200 persons per financial year for each type of security. Excludes: Qualified Institutional Buyers (QIBs) and Employees under ESOPs (per Section 62).
- Minimum Investment: Subscription size of INR 20,000 face value per person.
- Exemptions: NBFCs and Housing Finance Companies registered with RBI or NHB.
Penalties for Non-Compliance:
Company, Directors, Promoters: Penalty: Higher of the offer amount, or ₹2 crore. and required to Refund all subscription monies within 30 days of the penalty order.
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