Author
Varun Chopra
The Company’s Act 2013 (New Act) has made some significant changes in its older version which calls for greater responsibility and transparency within the Corporate Sector. The Said act has revamped the procedure of allotment of shares and securities by Private Companies as compared to procedure laid down by its older version i.e. Companies Act 1956.
Varun Chopra
The Company’s Act 2013 (New Act) has made some significant changes in its older version which calls for greater responsibility and transparency within the Corporate Sector. The Said act has revamped the procedure of allotment of shares and securities by Private Companies as compared to procedure laid down by its older version i.e. Companies Act 1956.
Issue of Shares by Private Placement
The Procedure for allotment of shares is
governed by Section 42 of the New Act.
Section
42 allows any company, private or public, to make private placement of
securities through issue of a “Private Placement Offer Letter” (PPOL). Rule 14
of the Companies (Prospectus and Allotment of Securities) Rules 2014 is applicable
in this regard in addition to Section 42.
1. A company
shall make an offer or invitation to subscribe to its shares or securities through issue of a private placement offer letter in Form PAS – 4.
2. A private
placement offer letter shall be accompanied by an application form serially
numbered and addressed to the person to whom the offer is made specifically and
shall be sent to him within thirty days of recording the names of such persons;
either in writing or electronic mode. Section 42(7)
3. Person so
addressed in the application form shall only be allowed to apply through such
application form and any application not adhering to this condition will be
treated as invalid.
4. A company
shall not make a private placement of its securities unless –
4.1 The proposed offer of securities or invitation to subscribe securities
has been previously approved by the shareholders of the company, by a
Special Resolution, for each of
the Offers or Invitations. Company can pass a special
resolution only once in a year for
all the offers or invitation for non- convertible debentures during the year.
Company has to File MGT-14 to registrar
within 30 days of filing such resolution. The basis or justification for the price
(including premium, if any) at which the offer or invitation is being made
shall be disclosed in the explanatory statement annexed to the notice for the
general meeting.
4.2 The above mentioned
offer or invitation shall not be made to more than 200 persons (excluding
invitation made to qualified institutional buyers, or to employees of the
company under a scheme of employee stock option) in the aggregate in a financial
year.
- Point 4.2 would be applicable for each kind of securities separately i.e. equity shares, preference shares or debentures.
- If point 4.2 is not complied, the offer will be treated as Public Offer and provisions governing Public offer will be binding on company, irrespective of following.
Ø whether the payment for the securities has
been received or not or
Ø whether the company intends to list its
securities or not on any recognised stock exchange in or outside India
- A company cannot advertise or use the media / marketing or distribution channels or agency for the purposes of private placement of shares.
- A Company cannot make a fresh offer or invitation unless the allotments with respect to any offer or invitation made earlier have been completed or withdrawn or has been abandoned by the company. Section 42(3)
- The price of the security has to be justified and a valuation report by a Registered Valuer (can be a company secretary, chartered accountant or a cost accountant) is required.
4.3 The
value of such offer or invitation per person shall not be less than Rs. 20000 of face value of
the securities.
4.4 The
payment to be made for subscription to securities shall be necessarily made
through the banking Channel by the person subscribing to such securities and
not by the cash; the company shall keep the record of the Bank account from
where such payments for subscriptions have been received.
4.5 The money so received shall be kept in separate bank account of the company and should not be utilised for purpose other than Allotment of shares or refund of application money.
4.5 The money so received shall be kept in separate bank account of the company and should not be utilised for purpose other than Allotment of shares or refund of application money.