Issue of Share Capital

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Private Placement

Issue of Share Capital

The issue of share capital refers to the process by which a company raises funds by selling shares to investors. It is a crucial aspect of a company's financial management and can have a significant impact on the company's operations and growth. By issuing shares, a company can raise funds for expansion, acquisitions, research, and development, or other business purposes. However, it also dilutes the ownership stake of existing shareholders and increases the company's financial obligations in the form of dividend payments and shareholder returns.

There are several types of issues of share capital that a company may use to raise funds from investors. Some of the most common types include Public issue, Rights issue, Private Placement, Preferential allotment, and Bonus issue.

Documents Required

  • Valuation Report
  • Private Placement Offer Letter
  • Special Resolution
  • Application form along with subscription money
  • List of allottees containing full name, address, PAN and e-mail ID, class of security, date of allotment and the number of securities held, nominal value, and amount paid on such securities.

What You Will Get

  • Filed Form MGT-14
  • Filed Form PAS-3
  • Records in PAS-4, PAS-5
  • Challan of all Filed Forms
  • Advisory related to that process

Private Placement is a method of raising capital in which a company sells securities, such as stocks or bonds, directly to a select group of investors, rather than offering them to the public at large. This type of offering is often used by companies that are seeking to raise funds without going through the time and expense of a public offering.

In a private placement, the company typically sells securities to a small group of accredited investors, such as wealthy individuals, institutional investors, or venture capital firms. These investors are often considered to be more sophisticated and have the resources to conduct their own due diligence on the company before investing.

Here are the steps involved in the process of private placement under the Companies Act 2013:

1. Approve from Board: -The Company needs to obtain approval from its board of directors to offer securities through private placement. The board of directors should authorize the offer, determine the terms and conditions of the offer, and fix the price of the securities.

2. Decide Valuation: -Before offering the securities, the company needs to conduct a valuation of its shares or other securities. This valuation should be conducted by an independent valuer who is registered with the Securities and Exchange Board of India (SEBI).

3. Prepare Offer Letter: -The Company needs to prepare a private placement offer letter in Form PAS-4 at least three days before the offer is made, which should include the terms and conditions of the offer, the price of the securities, and the number of securities being offered. The offer letter should also include a statement that the securities are being offered only to a select group of investors and that they cannot be transferred or sold to the general public.

4. Approve from Member: -The Company needs to obtain approval from its shareholders for the private placement. The approval should be obtained by way of a special resolution passed at a general meeting of the shareholders.

5. File MGT-14: - The Company needs to file the special resolution with ROC in Form MGT-14 within 30 days from the date of passing the special resolution.

6. Circulate Offer Letter: -After Filing MGT-14 Company needs to Circulate PAS-4 (Letter of offer) to the person to whom the offer is made. It shall be sent either in writing or in electronic mode.

7. Allotment of securities: -Company shall issue private placement offer cum application letter only after filling MGT-14.

8. File PAS-3: -The Company needs to file Form PAS-3 with the ROC within 30 days of the allotment of securities. Form PAS-3 is a return of allotment that contains details of the securities issued, such as the number and price of the securities and the names and addresses of the allottees.

9. Issue Share Certificate: -After filing of all the required forms with the RoC, the share certificate is issued to the shareholders. After issuing of Share Certificate, the stamp duty should be paid by the Company within 30 days of Issue of Share Certificate.

10. Record of Private Placement Offers: -The record of Private Placement is maintained in Form PAS-5. The Register of members should be updated after the completion of Allotment of Shares.

Frequently Asked Question

A public company or private company(other than OPC) can issue shares on private placement basis.

Equity Shares, Preference Shares and Debentures.

Yes, Company can issue shares on premium basis under private placement.

Non-compliance can lead to a penalty of INR 2 crores or the amount involved in the offer, whichever is higher.

Allotment must be made within 60 days. If not made within 60 days, amount should be refunded within 15 days. Otherwise, interest @ 12% will be payable.

Subscription money paid by only electronic mode and not by cash.

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