Step by step procedure on Private Placement in case of Private Limited Company

Private placement refers to offering securities like equity shares, preference shares (except irredeemable ones), and debentures to a select group of individuals identified by a company’s board, limited to 200 persons annually (excluding NBFCs and Housing Finance Companies). Pre-requisites include ensuring prior offers are concluded or withdrawn, dematerialization of securities for applicable entities, compliance with authorized share capital limits, and no defaults in the redemption of preference shares or debentures. The process involves obtaining a valuation report from a registered valuer, preparing a private placement offer letter, and passing board and special resolutions. The offer letter must be sent to identified individuals and a separate bank account opened for subscription money. Securities must be allotted within 60days of receiving the application money, with required filings (MGT-14, PAS-3) and updates to records, including the Register of Members. Share certificates or dematerialized updates must follow promptly. Additional points include restrictions on fund utilization until allotment, maintaining detailed records, and adherence to timelines for share allotment, refunds, or filings. Non-compliance with timelines may lead to penalties, including interest. Significant beneficial ownership changes post-allotment must also be declared and reported. This structured approach ensures legal compliance and transparency in private placements.

  1. Understanding of Private Placement:
  2. What is Private Placement..?

Offer or invitation to subscribe or issue of shares only to a select group of persons as identified by the Board and whose number except incase of Non-banking Financial Company and Housing Finance Companies, in a financial year, shall not exceed 200 in aggregate.

  1. Type of Securities that can be issued in Private Placement?

Equity Shares, Preference Shares (Except Irredeemable Preference Shares in case of Company limited by Shares), Debentures.

  1. Pre-Requisites :
  2. No fresh offer or invitation shall be made unless the allotments with respect to any offer or invitation made earlier have beencompleted or that offer, or invitation has been withdrawn or abandoned by the company.
  3. Entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in case of Companies towhom it is mandatory for Dematerialisation of Shares.
  4. Check AOA whether – Authorised share capital is sufficient for issue of shares through private placement and Authorises for issue ofshares through private placement. If not, alter AOA to include the same.
  5. In case of issue of Preference Shares, the Company has no subsisting default in the redemption of Preference Shares or in paymentof dividend due on any preference shares.
  6. In case of issue of Debentures, the Company has no subsisting default.
  1. Procedure :
  2. Search a registered valuer for valuation of shares of the company for deciding the price at which shares will be issued through privateplacement offer.
  3. Prepare Private placement letter-cum-application form
  4. Holding a Board Meeting for passing the following Resolutions-

Ascertaining the names of persons to whom the shares will be offered through private placement

Appointing of Registered Valuer

Issuing of shares on private placement basis subject to members approval by way of special resolution

Authorising a director to take steps to facilitate dematerialisation of all securities of the company, if applicable

Authorising a director(s) and company secretary, if any, to sign the documents

Opening of separate bank account with the scheduled bank for depositing the share application money to be received

Fixing up the day, date, time and venue for calling the general meeting

Approving of notice for calling of general meeting for passing special resolution for issuance of shares through privateplacement.

  1. Obtain Valuation Report
  2. Filing of MGT 14 for Board Resolution (even for Pvt Ltd Co.’s) with ROC within 30 days of passing Board Resolution.
  3. Send Notice of General Meeting all directors, shareholders, auditors, secretarial auditors and Debenture Trustee, if any
  4. Convene general meeting for obtaining approval of members by way of special resolution for offer and issue of shares through privateplacement.
  5. Filing of MGT 14 for Special Resolution with ROC within 30 days of passing Board Resolution.
  6. Preparation of Private placement letter- cum- application form.
  7. Holding a Board Meeting for passing the following Resolutions-
  1. Maintain a complete record of private placement offer letter in PAS-5 form.
  2. Send private placement offer letter-cum- application form in PAS-4 to identified persons, whose names and address are recorded bythe company, serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either inwriting or in electronic mode, within 30 (thirty) days of recording the name of such person. This should be issued only after filing MGT 14 toROC.
  3. Receipt of amount of subscription through Banking Channels in case of issue of shares for consideration
  4. Convene board meeting, within 60 days of receipt of application money, to pass the following resolutions:
  1. If the shares are not allotted in Demat, then make entries in Register of Members in Form MGT 1 within 7 days of Board Meeting.
  2. Filing of PAS 3- Return on Allotment with ROC within 15 days from the date of allotment
  3. Issue of Share certificates (in case of other than Demat) in Form SH -1.
  4. Individual who acquires significant beneficial ownership shares after this allotment, has submitted a declaration in Form BEN-1 to the company, within 30 days of acquiring such significant beneficial ownership shares or any changes in such ownership. If Form BEN-1 is received by the company, Form BEN-2 is filed with the ROC within 30 days from the date of receipt of such declaration.
  5. Other Points :
  6. The money received on the application should be kept in a separate bank account and shall not be utilised for any purpose other than –

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities

  1. The company shall not utilise monies raised through private placement unless allotment is made, and the return of allotment is filed inPAS-3 to ROC.
  2. Shares shall be allotted within 60 days from the date of receipt of the application money, and if the company fails to allot shares, it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days and in case the company fails to repay the application money within the aforesaid period, the company shall be liable to repay application money along with interest at the rate of 12% p.a. from the expiry of the 60th day.