New Companies Act, 2013 makes the capital investment challenging by introducing new provisions regarding fund raising in any form of Company. There are various modes of raising funds by any Company, as listed below:
Public Company:
- Public Offer
- Private Placement
- Right Issue or Bonus Issue
Private Company:
- Private Placement
- Right Issue or Bonus Issue
For any corporate, ‘Private Placement’ is one of the most favorable modes used by the companies for fund raising. The main reason behind this medium being chosen by the Companies, is the ease in terms of fewer procedural requirements to be complied with.
However, there are certain grey areas which if not understood correctly (due to varied interpretations), the Company may face difficulties in adhering to procedural compliances. Thus, there are many Companies and their promoters who have struggled with procedural requirements and have been incorrectly complying to same due to misinterpretations.
Meaning of Private Placement:
“Private Placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in the Section 42 of the Companies Act, 2013 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014
Steps to be followed for Private Placement:
- Holding of Board Meeting for:
- Identification of proposed investor(s) for Private Placement
- Approval of Offer Letter subject to shareholders’ approval
- Calling of Extra Ordinary General Meeting
- Holding of Extra Ordinary General Meeting for:
- Passing of Special Resolution for approval of Offer Letter
- Authorization of ‘Officer’ for dispatch of Offer Letter to the identified proposed investor(s)
- Opening of separate Bank Account for such private placement
- Circulation of Offer Letter
- Filing of information of allotment with Ministry of Corporate Affairs in prescribed e-forms
- Acceptance of offer on receipt of Offer Letter and transfer of money by the identified investor(s)
- Based on receipt of applications, allotment of Shares to each proposed allottees
- Filing of Return of Allotment with Ministry of Corporate Affairs in prescribed e-form
- Issue of Share Certificates and payment of stamp duty accordingly
Critical Points to be remembered while raising money through Private Placement:
- Minimum Investment size is required to be Rs. 20,000/- (Rupees Twenty Thousand)
- Offer can be made to maximum 200 persons in one financial year
- The Explanatory Statement to the General Meeting notice should contain the basis or the justification for the proposed issue price
- No fresh invitation can be made unless previous allotments have been completed or withdrawn
- All monies payable towards subscription shall be paid through either Cheque/ Demand Draft or any other normal banking channels but CASH transaction is STRICTLY PROHIBITED
- Money received on application cannot be utilized for any purpose until allotment procedure has been completed
- The allotment procedure shall be completed within 60 days of receipt of funds
Hope the above information provides an insight of the compliances which are required to be complied by the Company while raising money through private placement.
You may get back to us for any more details on above provisions or any other matter related to Companies Act, 2013 at below mentioned contact details-
Malavika Bhatia | <malavika.bhatia@bluelotusstrategy.com>
Monika Bhardwaj | <monika.bhardwaj@bluelotusstrategy.com>
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