Private Placement- Full Concept with Procedure

A private placement is an offer or invitation by a company to apply for or issue securities to a specific group of people (except by public offering). 

In any fiscal year, private placements may, at the discretion of the Board of Directors, be made to only a small number of persons, excluding qualified institutional investors and corporate employees, to 50 or less, or not more than 200. Which securities are based on the employee stock options system.

Table of Contents Definition of a Private Placement Compulsory Prerequisites Procedure Conclusion

Definition of a Private Placement

Private placement is the sale of stocks and bonds to preselected investors and institutions rather than the general public. For companies looking to raise and expand capital, this is an alternative to initial public offering (IPO). Wealthy individual shareholders, financial institutions, mutual funds, insurance companies and pension funds are among the investors invited to participate in private placement programs.

The fact that a private placement has few regulatory requirements is one of its advantages.

Compulsory Prerequisites 

Funds raised through private placement will not be available until the allocation has been made and a refund of the allocation has been submitted to the registrar. No new offer or invitation can be made unless the tasks associated with the previous offer or invitation has been completed or the company has withdrawn or abandoned such offer or invitation. 

Companies that issue securities through private placements may not create public advertisements or use media, marketing, distribution channels, or agencies to notify the general public of such offerings.

Procedure

Step 1- Notification to the Stock Exchange [Section 29 of the SEBI (LODR) Regulations, 2015]

Listed companies must report to the stock exchange at least two business days before the board of directors considering a private placement proposal to issue securities. However, the announcement date and date are excluded. 

Step 2- Convene a Board of Directors Meeting [as per Section 173 and SS-1]

• At least 7 days before the date of the board of directors, we will send an invitation to the board of directors to all directors of the company at the registered address. In an emergency, shorter notifications may be given. 
• Please attach the minutes, notes to the minutes, and the resolution to the notice.
• Hold the company’s board of directors and pass the required board resolutions- 
  • Review and approval of the issuance of securities by private placement. Approve the private placement offer letter. 
  • Determine the population in which private placements are taking place.
  • To determine the date and place of our general meeting. 
  • Approve the draft notice of the General Assembly and the explanation of the reasons accompanying the notice in accordance with Article 102 of the Companies Act 2013. 
  • Approve that the director or company secretary signs and issues the notice of the general meeting and that he or she takes any other action, means, or matter necessary to carry out Board resolution 

• Listed companies will announce the results of the board of directors within the time limit after the closing of the board of directors and post them on the company’s website within two business days. [SEBI (LODR) Rule, 2015, Rule 30 and 46 (3)] 
•  Within 15 days of the end of the Board of Directors, draft minutes, circulate to all Directors, and manually / prioritize. Request comments by mail / registered mail / courier. Email.

Step 3- MGT-14 should be filed with ROC
Attachments: 

• EGM Notice 
• SR CTC 
•  Minutes

Step 4- Achieve Shareholder Authorization

• By Calling a General Meeting 
• By Passing a Postal Ballot Resolution

Step 5- Unlock a distinct Bank Account

The company will need to open another bank account at the proposed bank in order to retain the funds received in application. 

Step 6- Issue an offer letter in PAS-4 within 30 days of the person’s name being recorded

• Serially numbered application form 
• Addresses of those to whom the offer is made
• Create a comprehensive record of Private Placement in PAS-5.
•  Submit PAS-4 and PAS-5 to ROC within 30 days of receiving an offer letter in GNL-2.

Step 7- Receive the Subscription Amount

• Except in the case of an issue of securities for consideration other than cash, the company shall receive the amount of subscription via cheque, demand draught, or other banking channels from the person subscribing to securities’ bank account.
• The company shall keep a record of the bank account from which such subscription payments have been received.

Step 8- Securities are distributed through a private placement

Following the completion of the Private Placement Offer, the Company shall-

• Call a Board Meeting, OR
• Within 60 days of receiving the application funds, pass a Board Resolution by Circulation.

Step 9- Fill in the details in the registers as required

• If the shares are not allocated in the form of Demat, the private company must complete the entry in the Register of Member in  Form MGT1 within 7 days of the board of directors where the allocation of common shares has been approved. 
•  Within 7 days of the board of directors approving the bond allocation, the private entity will create the required entry in the bondholder register for Form MGT2.

Step 10- Submit a Return of Allotment to ROC

The company must file a return of allotment in Form PAS-3 with the Registrar of Companies (ROC) within 15 days of the date of allotment, along with the following attachments-

• A list of allottees is required, with a separate list for each allotment.
• In all cases, a copy of the Board of Directors’ or Shareholders’ resolution approving the allotment of securities is required.
• In the case of private placement, a complete record of private placement offers and acceptances in Form PAS-5 is required.
• Any additional information can be included as an optional attachment (s).

Step 11- Issuance of the Necessary Certificates

• Private organizations which have now no longer assigned stocks in Demat layout have to trouble the certificates of stocks allocated in Form SH-1 to the respective shareholders inside months of the date of allotment, after paying the stamp obligation to the respective nation government. 
•  Private organizations which have now no longer been allocated Debentures in Demat layout have to trouble and bring the debentures certificate inside 6 months of allotment. 

Conclusion

The Companies Act 2013 formally introduced the concept of private placement, which has worked through practice and experience, with the support of different provisions in different sections. The term “private placement” is defined in Section 42 of the New Companies Act 2013.  “Private Placement” means that the Company solicits or solicits securities (other than  public placement) through the issuance of a Private Placement Letter that meets the conditions set forth in this Article. 

Under the new law, private placements by  limited liability companies also require the issuance of  offer letters. This means that the private placement procedure for issuing shares  also applies to private companies.