Issue of shares can be done through various methods like right issue basis, preferential allotment, bonus shares etc. Private placement is one of the method for issue of shares in a company. Private placement is defined in Section 42 of the Companies Act, 2013 read with Rule 14 under Companies (Prospectus and Allotment of Securities Rules 2014).In this method an offer can be made to not more than 200 people. This limit of 200 person does not include Qualified Institutional Buyers and Employees and the limit of 200 people is to be calculated individually for each kind of security.
The payment for subscription should be through the bank account of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received. No cash transaction is permitted. The money so received has to be kept in a separate bank account of the company and should be utilized only for allotment of shares.
For allotment of shares through private placement it is necessary to take approval of shareholders and to pass a special resolution for taking approval of the shareholders. With the notice of the EGM an explanatory statement should be annexed which should mention the basis of arriving at the price at which shares are issued to the shareholders.
1. First we have to check whether there is a provision in the article for allotment of shares on private placement basis, if there is no such provision then we have to first amend the articles.
2. Hold a board meeting to consider and pass resolution for-
a. Prepare draft offer letter which is to be circulated to all the shareholders. The offer letter should be as per the format given in pas-4.
b. Make proposal for private placement and pass resolution and get it approved in the board meeting.
c. Prepare list of shareholders to whom share are to be issued
d. Make provision for holding EGM and prepare notices for the same. Authorize director to take steps for holding the extra ordinary general meeting.
3. Hold the extraordinary general meeting and pass special resolution for taking approval of shareholders to approve the draft offer letter. The special resolution passed in the EGM is valid only for 12 months.
4. Circulate the approved offer letter to the shareholders and file form MGT-14.
5. Prepare complete records of private placement in form 5.
6. Hold another board meeting for allotment of shares and file form pas-3 within 30 days of passing resolution at the board meeting
7. Allotment should be made within 60 days of the receipt of share allotment money, If not done within the time prescribed it should be returned to the shareholders.
8. Issue share certificate to the shareholders to whom share have been issued.
PENALTY FOR CONTRAVENTION
If any one contravenes the provision of Section 42 of the Companies Act, 2013 then there is a penalty for that which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.