24 Feb Private Placement: Overview and Procedures
Private placements involved offering securities to a select group of individuals or entities rather than to the general public. These offerings, often utilized by companies seeking capital without undergoing an initial public offering (IPO), target investors such as wealthy individuals, financial institutions, mutual funds, and pension funds.
One of the notable advantages of private placements is their minimal regulatory requirements.
Essential Prerequisites:
Before funds raised through private placements can be accessed, certain steps must be completed. These include finalizing allocations and submitting refund applications to the registrar. Additionally, no new offers can be made until previous tasks are concluded or abandoned.
Companies engaging in private placements are prohibited from public advertising or using conventional marketing channels to notify the general public about these offerings.
Procedural Steps:
- Notification to the Stock Exchange: Listed companies are required to inform the stock exchange at least two business days before the board of directors' consideration of a private placement proposal.
- Convene a Board of Directors Meeting: The company must call for a board of directors meeting, adhering to the stipulated notice period. During this meeting, various resolutions regarding the private placement are discussed and approved.
- Submission of MGT-14 to ROC: After the board meeting, relevant documents including the notice for an Extraordinary General Meeting (EGM), special resolution, and meeting minutes are filed with the Registrar of Companies (ROC).
- Obtain Shareholder Authorization: Shareholder approval for the private placement is obtained either through a general meeting or a postal ballot resolution.
- Open a Designated Bank Account: A separate bank account is opened to receive funds from the private placement.
- Issuance of Offer Letter (PAS-4): Within 30 days of recording names, the company issues offer letters, along with application forms, to potential investors. Detailed records of the private placement are maintained and submitted to the ROC.
- Receipt of Subscription Amount: Payment for securities is received via designated banking channels and recorded accordingly.
- Distribution of Securities: Following the private placement offer's completion, securities are distributed either through a board meeting or by passing a board resolution within 60 days of receiving application funds.
- Register Entry: Entries regarding share or bond allocation are made in the respective registers as required by law.
- Submission of Return of Allotment to ROC: Within 15 days of allotment, the company files Form PAS-3 along with necessary attachments to the ROC.
- Issuance of Certificates: Certificates of shares or debentures are issued to shareholders within the stipulated timeframe.
Conclusion:
Private placement, as introduced by the Companies Act 2013, streamlines the process of issuing securities to a select group of investors. With defined procedures and regulations, private placement offers an efficient alternative for companies to raise capital.
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