Procedure for private placement

As per Section 42 of the Companies Act, 2013 read with Rule 14 under Companies (Prospectus
and Allotment of Securities Rules 2014), Private Placement means any offer of securities or
invitation to subscribe securities (equity or securities that convert to equity) to a select group of
persons by a company, other than by way of public offer, through issue of a private placement
offer letter.
Some of the essential conditions governing these guidelines are:
An offer can be made under a Private Placement Offer Letter to not more than 200 people. This
limit is available to not the number of shareholders who get allotted the shares but also to the
invitation to subscribe being made.
This limit excludes Qualified Institutional Buyers and Employees and the limit of 200 people is
calculated individually for each kind of security. It would then seem that, due to this restriction,
the issuing company cannot make a public announcement of such offers.
The application form has to be numbered and addressed specifically to the person to whom the
offer is made along with the Offer Letter. Allotments can be made only to such persons.
The value of the Offer per person shall not be less than Rs 20,000 of the face value of
securities. The payment for subscription should be through the bank account of the person
subscribing to the securities and the company should keep a record of the bank account from
where such payments have been received. No cash transaction is permitted. The money so
received shall be kept in a separate bank account of the company and utilized only for allotment
(or repayment).
The price of the security has to be justified through a valuation report by a Registered Valuer
who can be a company secretary, chartered accountant or a cost accountant.
The Articles of Association should provide for and shareholders of the company through special
resolution approve the Offer and this resolution should be acted upon within 12 months. At any
given point in time, there should be only one active offer for each kind of security.
Allotment has to be completed within 60 days, else from the 75th day, the share application
monies have to be repaid. In the event of failure to repay, interest at 12% pa has to be paid. If
there is a Foreign Direct Investment, RBI has allowed for 180 days for allotment. Here, there is
an obvious conflict between the RBI regulation which talks of 180 days under the Foreign
Exchange Management Act, 1999 and the Companies Act, 2013, which talks of 60 days time
frame for allotment of shares.

Procedure for the private placement of securities:

1. Check Provision in Article regarding Private Placement. If not there, amend the Articles.
2. Call Board Meeting to consider the following :
i.
To Prepare Offer Letter
ii.
Make Proposal for Private Placement
iii.
Prepare list of persons to whom option will be given. The persons to whom the offer
is to be made shall be identified at the first place. The private placements should be
done according to the form PAS. 41
3. Call Extra Ordinary General Meeting (EGM).Call Extra Ordinary Meeting to consider the
following:
i.
ii.
iii.

Pass Special Resolution, which will be valid for 12 months2

If Private Placement is not completed in 12 Month, pass another Special Resolution
Approve Draft Offer Letter by Special Resolution

4. File MGT-14 with ROC with Attachments like minutes, certified true copy of special
resolution and etc.
5. Issue offer letter in PAS-4 within 30 days of record of name of persons:
i.
Application form serially numbered
ii.
Address to the persons to whom the offer is made.3
6. The company has to maintain complete record of the private placement offers and
acceptances in the Form PAS. 54
7. File PAS-4 and PAS-5 with ROC within 30 days of issue of offer letter with global
location number.
8. Make Allotment of shares within 60 days of receipt of Money from the persons to whom
right was given.
9. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
10. Issue Share Certificates.

1 As per rule 14(1) (a) of the Companies(Prospectus and Allotment of Securities)

Rules,2014
2 As per rule 14(2) (a) of the Companies(Prospectus and Allotment of Securities)
Rules,2014
3 As per rule 14(1)(b) of the Companies(Prospectus and Allotment of Securities)
Rules,2014
4 As per rule 14(3) of the Companies(Prospectus and Allotment of Securities)
Rules,2014