ISSUE OF SHARES UNDER PRIVATE PLACEMENT BY UNLISTED PUBLIC AND PRIVATE LIMITED COMPANIES
An unlisted public company and private companies can issue shares under Private Placement offer pursuant to Section 42 & 62 (1) (c) of Companies Act, 2013 (Act) and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 and Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014.
When Private Placement can be opted for issuance of shares:
1. When shares are supposed to be issued to persons, who are not existing shareholders nor employees of the Company;
2. Where shares are issued to the selected group of existing shareholders; or
3. When shares are issued for consideration other than cash.
Procedure:
1. Passing of Board resolution for appointment of Valuer for valuation of shares and Valuation of consideration in case where shares are issued for consideration other than cash.
2. Passing of Board Resolution for issuance of shares under private placement offer and issuance of Notice of General meeting along with explanatory statement.
3. Passing of Special Resolution.
4. Filing of MGT-14 within 30 days from the date of passing of special resolution.
5. Issuance of Private Placement offer cum application letter (Form PAS-4)
6. Entry in PAS-5 (Record of Private Placement).
7. Opening of Separate Bank Account in Schedule Bank.
8. Allotment of Shares.
9. Entry in Register of Members (MGT-1)
10. Filing of Return of Allotment (PAS-3) within 15 days from the date of allotment.
Timeline in Private Placement Offer
| Sr. No. | Particulars | Timeline |
| 1 | Filing of Particulars of Special Resolution | Within 30 days from the date of Resolution |
| 2 | Issuance of Private Placement offer cum application (PAS-4) | Within 30 days from the date of recording the name of such person as identified person pursuant to section 42 (3). |
| 3 | Allotment of Securities | Within 60 days from the date of receipt of application money |
| 4 | Completion of Allotment | Within 12 months from the date of passing of Special Resolution. |
| 5 | Filing of Return of Allotment | Within 15 days from the date of Allotment |
Valuation
Pursuant to Section 62 (1) (c) of the Act, valuation of Shares shall be determined on the basis valuation report issued by the registered valuer and pursuant to Rule 13 (g) of The Companies (Share Capital and Debentures) Rules, 2014, price of shares or other securities issued under preferential offer, whether or not it has been issued for consideration other than cash or in cash, shall be determined on the basis of valuation report issued by the registered valuer.
Further, where the shares or securities are issued for consideration other than cash, valuation of such consideration shall be determined by a valuation report issued by a registered valuer.
Important Provisions
An offer or invitation to subscribe securities under private placement shall not be made to persons (other than Qualified Institutional Buyers and employees of the Company to whom securities are issued pursuant to section 62 (1) (b) of the Act) exceeding 200 in a F.Y.
Provided that the above provision shall not be applicable to-
1. NBFCs which are registered with the Reserve Bank of India under the Reserve Bank of India Act,1934; and
2. Housing Finance Companies which are registered with the National Housing Bank under the National Housing Bank Act, 1987
If they are complying with regulations made by the Reserve Bank of India or the National Housing Bank in respect of offer or invitation to be issued on private placement basis.
Further the above limit shall be applicable to NBFCs and Housing Finance Companies, where RBI and NHB has not specified similar regulations.
1. Private Placement Offer and application shall not carry any right of renunciation.
2. Subscription money payable by the identified person for allotment of securities shall be either by cheque or demand draft or other banking channel and not by cash.
3. The Company shall not utilise the money raised through Private Placement offer unless Return of Allotment (PAS-3) has been filed with the Registrar.
4. No fresh offer or invitation of Private Placement shall be issued unless the allotment of previous offer/invitation has been completed or previous offer/invitation is withdrawn or abandoned by the Company.
