{"id":51408,"date":"2022-12-20T14:33:29","date_gmt":"2022-12-20T09:03:29","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=51408"},"modified":"2022-12-20T14:34:31","modified_gmt":"2022-12-20T09:04:31","slug":"private-placement-under-section-42-of-the-companies-act-2013","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/private-placement-under-section-42-of-the-companies-act-2013\/","title":{"rendered":"Private Placement under Section 42 of the Companies Act, 2013"},"content":{"rendered":"\n<p>Private\nPlacement (PP) refers to an act of a company to raise funds without issuing\nsecurities publicly. Companies offer securities or invite certain specific\npeople to subscribe to the securities by providing a Private Placement Letter.\nA company can issue securities like shares, preference, and equity shares by\nemploying Private Placement to raise capital. Private Placement s can only be\nmade to persons who the board of directors of a company has already identified.\nA company must not publicly advertise its offer of securities or use any other mode\nof media, marketing, distribution channels, or agents to intimate its offer to\nthe public, as it would cease to be a Private Placement and shall become a\npublic offer. Private Placement s are governed by Section 42 of the Companies\nAct, 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities)\nRules, 2014.<\/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\/private-placement-under-section-42-of-the-companies-act-2013\/#Offer_Letter_for_Private_Placement\" >Offer Letter for Private Placement<\/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\/private-placement-under-section-42-of-the-companies-act-2013\/#Approval_of_Shareholders_for_Private_Placement\" >Approval of Shareholders for 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\/private-placement-under-section-42-of-the-companies-act-2013\/#Private_Placement_Threshold_Limit\" >Private Placement Threshold Limit<\/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\/private-placement-under-section-42-of-the-companies-act-2013\/#Private_Placement_Subscription\" >Private Placement Subscription<\/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\/private-placement-under-section-42-of-the-companies-act-2013\/#Allotment_of_Private_Placement\" >Allotment of Private Placement<\/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\/private-placement-under-section-42-of-the-companies-act-2013\/#Filing_Return_of_Allotments_with_the_Registrar_of_Companies\" >Filing Return of Allotments with the Registrar\nof Companies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/private-placement-under-section-42-of-the-companies-act-2013\/#Necessary_Documents_for_Issue_of_Securities_through_Private_Placement\" >Necessary Documents for Issue of Securities\nthrough Private Placement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/private-placement-under-section-42-of-the-companies-act-2013\/#Procedure_for_Making_a_Private_Placement_Offer\" >Procedure for Making a Private Placement Offer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/private-placement-under-section-42-of-the-companies-act-2013\/#Non-Compliance_with_the_Private_Placement_Mandate\" >Non-Compliance with the Private Placement\nMandate<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/private-placement-under-section-42-of-the-companies-act-2013\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Offer_Letter_for_Private_Placement\"><\/span>Offer Letter for Private Placement <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A company looking to offer its securities through\nPrivate Placement &nbsp;is required to do it\nby means of an offer letter sent to a specific group of persons. This is\nprovided for in the Companies (Prospectus and Allotment of\nSecurities) Rules, 2014. The Rules mandate that any company inviting subscribers\nto its securities must do it using the offer letter under Form PAS-4. To make\nan offer, the name of such person to whom the offer is to be made must be\ndecided and recorded before sending such an offer letter. The company offering Private\nPlacement &nbsp;is required to maintain a\nrecord of all the offers made under Form PAS-5. <\/p>\n\n\n\n<p>The company is required to send the offer letter\nwithin 30 days of recording the name of such persons. The offer letter is to be\nmade along with an application form numbered serially and addressed to such\npersons either electronically or in writing. <\/p>\n\n\n\n<p>The company is also required to send details of\nsuch offers made and the Private Placement offer letter to the Registrar of\nCompanies or ROCs within 30 days of sending out the Private Placement offer\nletter along with the prescribed fee as is provided under Companies (<strong><a class=\"text-primary\" href=\"https:\/\/corpbiz.io\/company-registration\">Registration Offices<\/a><\/strong> and Fees) Rules, 2014. When the company\noffering securities privately is a listed company, it must file the record of private\noffers made along with the Private Placement offer letters with the Securities\nand Exchange Board of India within 30 days of sending out the PP offer letter.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Approval_of_Shareholders_for_Private_Placement\"><\/span>Approval of Shareholders for Private Placement\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For a company to make an offer of its securities\nthrough this, approval is required from the company&#8217;s shareholders making such\nan offer. Every invitation sent out by the company to subscribe to its\nsecurities can only be made after a special resolution is passed in this\nregard. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Private_Placement_Threshold_Limit\"><\/span>Private Placement Threshold Limit<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In a fiscal year, the number of people to whom a\ncompany can make a Private Placement &nbsp;offer must be at most 50 or any other higher\nnumber as prescribed by the rules, that is, 200. This cap of 50 persons shall\nnot include the employees of the company to whom the securities are offered\nunder the Employee Stock Option scheme as is provided under Section 62 of the\nCompanies Act, 2013 and qualified institutional buyers. This limit shall not\napply to Non-Banking Financial Corporations instituted under the Reserve Bank\nof India Act, 1934 or the housing finance institutions registered as per the\nNational Housing Bank Act, 1987, with the national housing bank.<\/p>\n\n\n\n<p>This limit of 200 persons applies individually\nto each type of security, like equity shares, debentures and preference shares,\nand is not considered jointly, including all the securities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Private_Placement_Subscription\"><\/span>Private Placement Subscription<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>People to whom the Private Placement offer\nletter has been sent shall subscribe to the securities by applying by means of\nthe Private Placement application and paying the requisite amount through any\npayment channel of an authorized bank, cheque, or demand draft. The payment\nmust not be made by means of cash. The fee shall be made through the\nsubscriber&#8217;s bank account, and the company must maintain a record of all the\npayments made by the subscriber.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Allotment_of_Private_Placement\"><\/span>Allotment of Private Placement <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Once the company making the Private Placement\noffer receives the money from the subscription of securities, it must allot\nsecurities to the subscribers within 60 days of receiving such subscription\nmoney.<\/p>\n\n\n\n<p>If, for any reason, the company cannot allot the\nsecurities within 60 days, it must return the money to the subscribers within\n15 days from when the above period of 60 days ends. Suppose the company makes\nfurther delay in paying the money and returns the application money after the\n15 days as mentioned above. In that case, the company shall be liable to return\nthe money with an interest rate of 12 % per annum every day from the expiry of\nthe 60<sup>th<\/sup> day.<\/p>\n\n\n\n<p>The money received from the applications must\nnot be utilized for any other purpose than repaying the application money when\nthe company cannot allot securities or adjust against the allotment of\nsecurities and must be kept in a different bank account opened for this purpose.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Filing_Return_of_Allotments_with_the_Registrar_of_Companies\"><\/span>Filing Return of Allotments with the Registrar\nof Companies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>After the allotment of securities has been\ncompleted, the company is required to file the return of allotment of\nsecurities with the Registrar of Companies within 15 days of receipt of such\nallotment under Form PAS-3 along with the prescribed fee as is provided under\nCompanies (Registration Offices and Fees) Rules, 2014. Except for when the\nfiling is being made by a small company or a one-person company, Form PAS-3\nmust be notarized by a company secretary or a chartered accountant with a valid\ncertificate of practice. While filing Form PAS-3, the company is also required\nto furnish the below-mentioned along with the form:<\/p>\n\n\n\n<ul><li>A\ndetailed list of all the security holders along with information about their\nname, address, contact details, Email ID, PAN. <\/li><li>The\ndate on when the security was allotted, along with details of the class of\nsecurity held. <\/li><li>The\nnumber of securities held, the amount paid for such securities, along with the\nnominal value.<\/li><li>If\nthe consideration for the securities was anything else other than money, then\ninformation about such consideration.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Necessary_Documents_for_Issue_of_Securities_through_Private_Placement\"><\/span>Necessary Documents for Issue of Securities\nthrough Private Placement <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The necessary documents required for the issuance\nof securities through Private Placement &nbsp;are:<\/p>\n\n\n\n<ul><li>Private\nPlacement &nbsp;offer letter with the\napplication form<\/li><li>Valuation\nreport<\/li><li>Copy\nof the board resolution approving the Private Placement &nbsp;(PP) offer letter<\/li><li>The\nnotice informing about the general meeting with the statement as to the special\nresolution<\/li><li>Private\nPlacement &nbsp;(PP) offer record as\nmaintained under Form PAS-5<\/li><li>Subscription\nmoney, along with the application form from all the proposed investors<\/li><li>A\ndetailed list of all the security holders along with information about their\nname, address, contact details, Email ID, and PAN with the date on when the\nsecurity was allotted along with more information of the class of security held\nand number of securities held, and the amount paid for such securities along\nwith the nominal value<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Procedure_for_Making_a_Private_Placement_Offer\"><\/span>Procedure for Making a Private Placement Offer<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The\ncompany needs to call a board of directors meeting by issuing a notice of the\nboard meeting seven days before such a board meeting is to be held.<\/li><li>In\nthe board meeting, the persons to whom such an offer letter is to be sent out\nshall be decided. The offer letter for PP and the application shall be\nprepared, and a board resolution shall be passed to approve the offer.<\/li><li>A notice\nintimating the holding of a general meeting shall be sent out to the\nshareholders 21 days before the general meeting.<\/li><li>In\nthe extra general meeting, the offer letter under form PAS-4 shall be presented\nto the shareholders, and a special resolution shall be passed to approve the PP.<\/li><li>The\noffer letter must be sent out within a period of 30 days from the day on which\nthe general meeting was held. <\/li><li>Form\nMGT-14 must be filed with the Registrar of Companies within a period of 30 days\nfrom the day on which such special resolution was passed.<\/li><li>The\ncompany must open a different bank account to receive payment from such\nsubscriptions.<\/li><li>The\ncompany must file Form PAS-4 and Form PAS-5 with the Registrar of Companies\nwithin 30 days of the offer letter being sent out by the company.<\/li><li>Once\nthe allotment money has been received, the company must hold a board meeting to\npresent the allottees list before the board of directors. After the allotment\nmoney has been received, a board resolution for the allotment of shares must be\npassed within 60 days of receipt of the allotment money. A board resolution to issue\nshare certificates to the shareholders must also be passed. <\/li><li>Once\nshares have been allotted, the company must file a return of the allotment of\nshares with the Registrar of Companies as is provided under Form PAS-3 within\n30 days of the allotment. A list of all the allottees to whom the securities\nhave been issued must also be attached to the form.<\/li><li>As\nis provided under Section 56 of the Companies Act 2013, the company must issue\nthe share certificate within 30 days of the issue of such shares.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Compliance_with_the_Private_Placement_Mandate\"><\/span>Non-Compliance with the Private Placement\nMandate<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Companies not following the mandate and\nprocedure concerning Private Placement s as stated under Section\n42 of <strong>the\nCompanies 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> and Rule 14 of the Companies (Prospectus and\nAllotment of Securities) Rules, 2014, shall be liable to incur hefty penalties.\nIf the company is found to have collected money while not complying with the\nmandates or acted against the provisions of the Companies Act, a fine of up to\nRupees 2 Crore or the value of each offer, whichever shall be higher. Moreover,\nthe company shall also be required to return the money paid by the subscribers\nwithin 30 days of the date of imposition of the penalty. <\/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 is a method companies use to raise funds without issuing securities publicly. Companies invite certain people to subscribe to the securities or offer securities by providing a PP letter. A company cannot publicly advertise its offer of securities or use any other mode of media, marketing, or distribution channels to intimate its offer to the public as it would amount to a public offer. PPs are governed by <strong><em>Section 42 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014<\/em><\/strong>. If a company is found to have complied with the mandates or acted against the provisions of the Companies Act, it can incur a penalty which can extend up to Rs. 2 Crore.<\/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\/issue-of-shares-through-private-placement\/\">Issue Of Shares Through Private Placement<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Private Placement (PP) refers to an act of a company to raise funds without issuing securities publicly. Companies offer securities or invite certain specific people to subscribe to the securities by providing a Private Placement Letter. A company can issue securities like shares, preference, and equity shares by employing Private Placement to raise capital. Private [&hellip;]<\/p>\n","protected":false},"author":47,"featured_media":51409,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[2967],"acf":{"service_id":"1"},"authorName":"Sherin Jose","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/11\/MicrosoftTeams-image-4-e1668575330329.jpg","authorDescription":"Sherin has degrees in Law and English Literature from the University of Delhi. She is adept at legal research and writing and enjoys discussing and analysing important legal developments. Her primary interests lie in Corporate, FinTech and IPR Law and she is always on the lookout for exploring new developments in the area. She is an avid reader who loves classics and contemporary fiction. She likes to travel, bake and obsess over cat videos in her free time.","postViews":9758,"readingTime":7,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51408"}],"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\/47"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=51408"}],"version-history":[{"count":4,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51408\/revisions"}],"predecessor-version":[{"id":51413,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/51408\/revisions\/51413"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/51409"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=51408"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=51408"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=51408"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}