Private Placement, tricky yet an easy route for funding

 

Private placement these days have became a common route to raise funds for all the companies. Rather than going for the public offer, companies prefer 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 offer letter and which satisfies the conditions specified in section 42 of the Companies Act, 2013.

 

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Although this being the easy way for funding, companies many a times overlook the critical provisions relating to private placement which leads to heavy penalty upto Rs. 2 crores.

 

Before proceeding to the penalty provision, it is crucial to understand the basic provision which need to be followed for successful funding procedure through private placement.

 

• Date of extra- Ordinary General Meeting (EGM) and Offer Letter shall be approved in the Board Meeting.
• In EGM, special resolution shall be passed for Private Placement of Securities.
• Circulate Offer Letter in Form PAS-4.

 

After circulation of Offer Letter, companies generally relax assuming the completion of main procedure for private placement. Hang on!! This is the beginning of the procedure.

 

Points to remember:

• Issue offer letter in PAS-4 within 30 days of record of name of persons:
• Application form serially numbered
• Address to the persons to whom the offer is made
• File GNL-2 attaching PAS-4 and PAS-5 WITHIN 30 DAYS FROM DATE OF CIRCULATION OF OFFER LETTER.
• File MGT-14 within 30 days of EGM.
• Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
• Call BM for allotment of shares.
• File PAS-3 with ROC within 30 days of allotment.
• File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
• Issue Share Certificates.

 

In case if any of the provision related to Private Placement is not complied then penalty upto Rs. 2 crore may be levied.

For e.g. If GNL-2 is not filed within 30 days from date of circulation of offer letter then company needs to file CG-1 to Central Government for condonation of delay. During this process, Government may impose penalty for not filing the form within the due time which may extend up to Rs. 2 crore.

 

For any assistance, visit taxmantra.com

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