Private Placement of Securities under section 42 of the Companies Act 2013

 

Private Placement of Securities under section 42 of the Companies Act 2013

Introduction

Companies have various methods of raising share capital, one of which is private placement. It is a technique that involves offering shares or other securities to a designated group of individuals, as determined by the company's board. Unlike a public offering through the issuance of a prospectus, private placement does not involve soliciting the general public.

According to a publication by the Reserve Bank of India (RBI), private placement typically involves offering securities to fewer than 50 persons and is exempt from the requirement of filing an offer document with the Securities and Exchange Board of India (SEBI) for review.

Definition as per the Companies Act, 2013

Section 42 of the Companies Act talks about the offer or invitation for subscription of securities on private placement.

Section 42(3) defines Private Placement as, “Private Placement” means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section.

Applicable Forms

To file a board resolution for approving a private placement and a special resolution for private placement, companies must use Form MGT-14. However, private companies are exempt from filing a board resolution in Form MGT-14 for share issuances as per the exemption notification dated 5 June 2015. Form PAS-5 should be used to record the list of individuals who receive the private placement offer letter. The private placement offer letter itself must be prepared in Form PAS-4, but the company can only issue the letter after filing the relevant special resolution or board resolution in the Registry.

 For private placements, the return of allotment should be filed through e-Form PAS-3 along with a list of allottees and other relevant details within 15 days of allotment. This includes their names, addresses, Permanent Account Numbers, email addresses, class of securities, date of allotment, number of securities held, nominal value, amount paid on such securities, and particulars of the consideration received if the securities were issued for consideration other than cash. Importantly, as per Section 42(4), companies cannot use the funds raised through private placement until the allotment is made and the return of allotment is filed with the Registrar.

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