{"id":5140,"date":"2020-03-20T17:25:57","date_gmt":"2020-03-20T11:55:57","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=5140"},"modified":"2022-11-16T13:53:57","modified_gmt":"2022-11-16T08:23:57","slug":"issue-of-shares-through-private-placement","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/","title":{"rendered":"Issue of Shares through Private Placement"},"content":{"rendered":"\n<p class=\"has-drop-cap\"><strong><em>Section 42 of Companies Act, 2013, provides to make an offer of shares to a selected group of person to make Issue of Shares through Private Placement. <\/em><\/strong>In today&#8217;s scenario, all the Company&#8217;s after successfully availing <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>company registration<\/strong><\/a>, irrespective of their size require the expansion of capital and growth of their business. So to raise capital, the <em><strong>Companies Act, 2013<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/www.mca.gov.in\/content\/mca\/global\/en\/acts-rules\/companies-act\/companies-act-2013.html\"><strong>[1]<\/strong><\/a><\/sup><\/em>, has come up with Section 42 in which the shares can be issued to selected persons. In this article, we will go through Procedure followed for Issue of Shares through Private Placement. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#What_is_Private_Placement_of_Shares\" >What\nis Private Placement of Shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#What_is_the_Procedure_for_Issue_of_Shares_through_Private_Placement\" >What\nis the Procedure for Issue of Shares through Private Placement?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#What_are_the_Conditions_for_Issue_of_Shares_through_Private_Placement\" >What\nare the Conditions for Issue of Shares through Private Placement?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#What_are_the_Documents_required_for_the_Issue_of_Shares_through_Private_Placement\" >What\nare the Documents required for the Issue of Shares through Private Placement?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#What_are_the_consequences_of_Non-Compliance_for_Issue_of_Shares_through_Private_Placement\" >What\nare the consequences of Non-Compliance for Issue of Shares through Private\nPlacement?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/issue-of-shares-through-private-placement\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Private_Placement_of_Shares\"><\/span>What\nis Private Placement of Shares?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Private\nPlacement is made only to a selected group of persons who are identified by the\nBoard of Directors of the Company. The Private Placement offer can be made to a\nminimum number of 50 persons and a maximum number as prescribed. <strong><em>The\nlimit on the number of persons is on Qualified Institutional Buyers (QIB) and\nEmployees under Employee Stock Option Scheme. <\/em><\/strong>The shares allotted\nthrough Private Placement should issue their shares within 60 days from the\nreceipt of the application money against such shares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Procedure_for_Issue_of_Shares_through_Private_Placement\"><\/span>What\nis the Procedure for Issue of Shares through Private Placement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The procedures prescribed for Issue of Shares through Private Placement is as follows:<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"591\" height=\"357\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-40.png\" alt=\"Procedure for Issue of Shares through Private Placement\" class=\"wp-image-5141\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-40.png 591w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-40-300x181.png 300w\" sizes=\"(max-width: 591px) 100vw, 591px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Call\nfor Board Meeting<\/h3>\n\n\n\n<p> A notice should be issued <strong><em>at least 7 days prior<\/em><\/strong> of the date of Board Meeting. The agenda of the Board Meeting should be attached in the notice.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"595\" height=\"76\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-41.png\" alt=\"Call for Board Meeting\" class=\"wp-image-5142\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-41.png 595w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-41-300x38.png 300w\" sizes=\"(max-width: 595px) 100vw, 595px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Hold\nBoard Meeting<\/h3>\n\n\n\n<p>The\nfollowing things should be checked in the Board Meeting:<\/p>\n\n\n\n<ul><li>The quorum of\nthe Board.<\/li><li>To identify the\npersons to whom Private Placement Offer is made.<\/li><li>Prepare Private\nPlacement offer under <strong><em>the Form PAS-4.<\/em><\/strong><\/li><li>A Board Resolution\nshould be passed for the approval of Private Placement Offer.<\/li><li>Issue notice of\nGeneral Meeting at least 21 days before the date of General Meeting as per <strong><em>Section\n101 of Companies Act, 2013<\/em><\/strong>.<\/li><li>The notice shall\ninclude the time, place, date and day of the General Meeting.<\/li><li>The notice of\nthe General meeting should include the statement of the business.<\/li><li>The notice can\nbe sent in writing or through electronic mode.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">File\nForm MGT-14<\/h3>\n\n\n\n<p>After\nthe passing of Board Resolution file <strong><em>Form MGT-14<\/em><\/strong> with the Registrar of\nCompanies (RoC). <strong><em>The Form should be filed within 30 days of passing of the Board\nResolution.<\/em><\/strong> &nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hold\nGeneral Meeting<\/h3>\n\n\n\n<p>In\nGeneral Meeting check for the quorum of the Meeting. Then pass the offer letter\nin Form <strong><em>PAS-4 for approval before the members of the Company<\/em><\/strong>. After the\napproval by the members, a Resolution is passed for Issues of Shares through\nPrivate Placement.&nbsp; <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">File\nform MGT-14 <\/h3>\n\n\n\n<p><strong><em>After passing of\nSpecial Resolution file Form MGT-14 with the Registrar of Companies (RoC).<\/em><\/strong>\nThe Form should be filed within 30 days of passing of the Special\nResolution.&nbsp; <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Circulation\nof Offer Letter<\/h3>\n\n\n\n<p>Send\nthe application letter to the person identified in <strong><em>PAS-4<\/em><\/strong> by the members of\nthe Board. The application letter should be sent within 30 days from recording\nnames of the persons identified.\n<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Open\na Separate Bank Account<\/h3>\n\n\n\n<p>The money will be received\nin a separate bank opened for the Private Placements only. The funds should be\nreceived in the bank account within the period specified in the offer period.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hold Second Board Meeting <\/h3>\n\n\n\n<p>After\nthe offer period is closed, hold a Board Meeting for Resolution for Allotment\nof Shares through Private Placement.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">File\nForm PAS-3 <\/h3>\n\n\n\n<p>The\nreturn of Allotment Form in <strong><em>PAS-3<\/em><\/strong> will be filed within 15 days\nof passing the Board Resolution for the Allotment of Shares.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Issue\nCertificate of Shares<\/h3>\n\n\n\n<p>After\nfiling of all the required forms with the RoC, the share certificate is issued\nto the shareholders. After issuing of Share Certificate, the stamp duty should\nbe paid by the Company within 30 days of Issue of Share Certificate.<\/p>\n\n\n\n<p>The\nrecord of Private Placement is maintained in Form PAS-5. The Register of\nmembers should be updated after the completion of Allotment of Shares. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Conditions_for_Issue_of_Shares_through_Private_Placement\"><\/span>What\nare the Conditions for Issue of Shares through Private Placement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>There\nare certain conditions mentioned under Section 42 of Companies Act, 2013, which\nshould be followed for Issue of Shares through Private Placement: <\/em><\/strong><\/p>\n\n\n\n<ul><li>The money received on the application should be kept in a separate bank account and should not be used for any purpose other than:<\/li><li><strong><em>For modification against Allotment of securities<\/em><\/strong><\/li><li><strong><em>For the settlement of money where the Company is not capable of allotting securities.<\/em><\/strong><\/li><li><strong><em>Allotment of Shares if not done within 60 days of the receipt of the application form, then the application money is to be repaid in 15 days.<\/em><\/strong> The Company if not repays the money after 15 days period mentioned above; the money with interest @ <strong><em>12% per annum is to be paid by the Company from the 60<sup>th<\/sup> day of the expiry of 15 days period as mentioned earlier.<\/em><\/strong><\/li><li>No public advertisement or utilization of media, marketing channels or distribution channels or agents should be used to inform the public at large about the Private offer. <\/li><li>Any offer in non-compliance of provisions of Section 42 will be deemed to be a public offer.<\/li><li>The money should be paid through Demand Draft (DD), or cheque, or any other banking channels but not in cash.<\/li><li>The Company can make no fresh allotment unless the earlier Allotment of Shares has been completed, withdrawn or abandoned by the Company.<\/li><li>The Allotment can only be done to the persons prescribed by the Board of Members of Company. &nbsp;<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/issue-of-bonus-shares-under-companies-act-2013\/\">Issue of Bonus Shares under Companies Act, 2013<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Documents_required_for_the_Issue_of_Shares_through_Private_Placement\"><\/span>What\nare the Documents required for the Issue of Shares through Private Placement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The\ndocuments required for the Issue of Shares through Private Placement are as\nfollows:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Valuation Report\nas on date of Allotment by a CS\/CA\/CMS in practice or SEBI registered Merchant\nBanker.<\/li><li>Copy of outcome\nof Board Meeting. <\/li><li>A true certified\ncopy of Resolution passed by Members of Company.<\/li><li>An Explanatory\nStatement of Resolution by members of Company.<\/li><li>An approved\noffer letter of Private Placement.<\/li><li>Form PAS-5 with\na detailed list of Allottees.<\/li><li>Letter of\nConsent from all the proposed Allottees.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_consequences_of_Non-Compliance_for_Issue_of_Shares_through_Private_Placement\"><\/span>What\nare the consequences of Non-Compliance for Issue of Shares through Private\nPlacement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Under Companies Act,\n2013,&nbsp;<\/strong><\/em>Section 42\nprovides that<em>&nbsp;<\/em>if\nany Company accepts or offers money in contravention to the provisions of\nSection 42,<strong><em> then the Company its Directors and Promoters will lead to a penalty of\n2 crores or the amount involved in the offer, whichever is higher.<\/em><\/strong> <strong><em>Within\n30 days from date of the order imposing the penalty<\/em><\/strong>, the Company is\nrequired to return the entire amount to subscribers.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Private Placement of Shares is a means by which the Company can raise capital. The practical and procedural aspects of Private Placement of Shares under the Companies Act, 2013, are explained under Section 42 of the Act. The process of Issue of Shares through Private Placement is a time-taking and lengthy task. We at <a href=\"https:\/\/corpbiz.io\/\"><strong>Corpbiz<\/strong><\/a> have experienced professionals who will help you with the process of Issue of Shares through Private Placement. Our professionals will help you and assist you with the process and assure the successful completion of your work.&nbsp; <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/complete-procedure-for-right-issue-of-shares\/\">Right Issue of Shares: Step by Step Procedure<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Section 42 of Companies Act, 2013, provides to make an offer of shares to a selected group of person to make Issue of Shares through Private Placement. In today&#8217;s scenario, all the Company&#8217;s after successfully availing company registration, irrespective of their size require the expansion of capital and growth of their business. So to raise [&hellip;]<\/p>\n","protected":false},"author":16,"featured_media":5143,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120,340],"tags":[412],"acf":{"service_id":"321"},"authorName":"Sakshi Sharda","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/sakshi-sharda.jpg","authorDescription":"Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.","postViews":36882,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5140"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=5140"}],"version-history":[{"count":8,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5140\/revisions"}],"predecessor-version":[{"id":50731,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5140\/revisions\/50731"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/5143"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=5140"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=5140"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=5140"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}