Private Placement of Shares under Companies Act, 2013

Private placement is one of the ways to raise funds for the company from selected group of people. The procedure prescribed under the companies act, 2013 is more stringent as compared to earlier companies act, 1956.

Section 42 of the Companies Act, 2013 read with rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014

A company may offer further shares to any person, if it is authorized by the special resolution, whether or not those persons include the person referred in clause a or clause b, either for cash or for the consideration other than cash, if the price of the shares is determined by the valuation report of the registered valuer subject to the conditions as may be prescribed.

In other words, the shares can be further offered-

  1. To persons other than the members of the company or
  2. To the existing members of the company and also to persons other than the existing members.

Conditions for private placement under section 42 are as follows:-

  1. It must be approved through a special resolution
  2. Such offer shall not be made to more than 200 persons in the aggregate in a financial year.
  3. The company shall maintain a complete record of the private placement offers in form PAS-5
  4. PAS-4 shall be filed with ROC with the fee as provided
  5. All monies to be paid through cheque or demand draft not by cash.

Brief Procedure: 

  1. Issue notice to call a board meeting to approve draft letter of offer and notice to call EGM.
  2. Pass a Special Resolution to approve the private placement of the company and approve the letter of offer of the private placement.
  3. File letter of offer to ROC within 30 days of circulation of letter of offer for private placement in form PAS- 4 with MCA portal.
  4. Allotment to be done within 60 days of circulation of letter of offer for private placement.