Private placement of shares & securities as per companies Act 2013

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.

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.

5.  A company making an offer or invitation shall allot its securities within 60 days from the date of receipt of the application money for such securities. It shall repay the application money to the subscribers within 15 days from the date of completion of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% from the expiry of the 60^th day.

6. The company shall maintain a complete record of private placement offers in Form PAS -5.

7. A copy of such record along with the private placement offer letter in Form PAS – 4 shall be filed with the Registrar with fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and where the company is listed, with the Securities and Exchange Board within a period of 30 days of circulation of the private placement offer letter.

Explanation: 

The date of private placement offer letter shall be deemed to be the date of circulation of private placement offer letter.

8. A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS – 3 with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 along with a complete list of all security holders containing-

·      the full name, address, Permanent Account Number and E-mail ID of such security holder

·         the class of security held

·         the date of allotment of security ;

·         the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.

           9.The provisions related to Maximum 200 person and minimum investment size of not less than twenty thousand shall not be applicable to –

(a)        Non-Banking Financial Companies (NBFC)

(b)        Housing Finance Companies (HFC)

                 10..  In case, Company makes any default in making an offer or while accepting monies without following above mentioned points, Directors and Promoters will have to bear the penalty amount of Rs. 2 Crores or amount involved in offer or invitation whichever is higher and refund all the money to its subscribers within 30 days.

So, if your company has made any private placement of shares to its directors or members, ensure that necessary laid down norms are complied with to avoid hefty penalty from Ministry of Corporate Affairs.