Procedure for Private Placement of securities under Companies Act 2013:

January 11, 2019
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Section 42 of the Companies Act, 2013 defines ‘Private Placement':
Any offer or invitation to subscribe securities to a select group of persons who have been identified by the Board of Directors of the company (other than by way of public offer) through issue of a private placement offer-cum-application, which satisfies the conditions specified in this section. Such number of persons must not exceed 50 at a time and not exceeding 200 in the aggregate (excluding QIBs and employees offered securities under ESOP), in a financial year.

Applicable Rule: Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014.


  1. Conditions for Private Placement:
  2. Offer per Person of Investment:
  3. Allotment of Securities:
  4. Steps involved in Private Placement:

           (i).   Holding of Board Meeting.

           (ii).  Holding of General Meeting.

           (iii). Circulation of Offer Letter.

           (iv). Statutory Filing with ROC.

           (v).  Holding of Board Meeting (after receiving of allotment money).

           (vi). Issue share certificates and update minute book and register.

  1. Document required for Private Placement:
  2. Consequences of Non-Compliance:
  1. Conditions for Private Placement:
  • A Company shall not make any Private Placement unless the same has been approved by Special Resolution.
  • An offer or invitation to subscribe cannot be made to more than 200 persons in aggregate in a financial year and not more than 50 people in each offer.
  • QIBs and employees offered Securities through ESOP are not to be included in the ambit of 200 person to whom the offer is made.
  • Neither a public advertisement nor any media/marketing/distribution channels or agents will be used to inform the public at large about such an offer.
  • No fresh allotment or invitation shall be made unless the allotment or invitation made earlier has been completed /withdrawn/abandoned by the Company.
  • The Company can allot securities only to those persons whose name is decided by the Board of Directors.
  • Right to acquire shares under Private Placement Offer can’t be renounce in favor of any other person [Rule-14(1) proviso]
  • Valuation report required by a Regd. Valuer to justify the price of securities. The Valuer can be a practicing CS/CA/CMA or a SEBI registered Merchant Banker.
  1. Offer per Person of Investment:

The minimum Investment size shall not be less than Rs. 20,000/- of face value of the securities per person and Such Application money shall be deposited from Bank account of the applicant either by cheque or demand draft or other banking channel but not by cash. Such application money could not be utilised by the company until it allots the corresponding securities. Also, the monies received on application shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than:-

  • for adjustment against allotment of securities; or
  • for the repayment of monies where the company is unable to allot securities.
  1. Allotment of Securities:

Allotment has to be carried out in 60 days from the date of receipt of application form. If the allotment is not done in given time, application money needs to be repaid within 15 days. If the Company does not pay money after the aforesaid period, then the Company is liable to repay the money with interest @ 12% per annum from the expiry of the 60th day.

  1. Steps involved in Private Placement:

(i).   Holding of Board Meeting:

To get approval from the Board of Directors for Private Placement of Securities, and approve the Draft  notice of General meeting for the following purposes:

  • To Hold General meeting, Pass Special Resolution for Private Placement and approve the Offer Letter under PAS-4.
  • Identify the person(s) to whom the Private Placement Offer or Invitation has to be made.
  • To alter AOA should it be required to give effect to Private Placement.
  • To open Separate Bank Account in the name of for depositing the money against allotment of Securities.

(ii).  Holding of General Meeting:

  • To pass special resolution for Private Placement along with resolutions to approve the Offer Letter in PAS-4 and authorize an officer of the company to give effect to the Private Placement.

(iii). Circulation of Offer Letter:

  • Offer Letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made.
  • Offer Letter will be sent either in writing or in electronic mode.
  • Issue Offer Letter within 30 days of General Meeting/ recording the name of such person(s).

(iv). Statutory Filing with ROC:

  1. File Form MGT-14 with ROC within 30/ days of passing of Special Resolution along with the following attachments:-
  • Notice of General Meeting with Explanatory Statement.
  • Certified True Copy of Special Resolution.
  • Minutes of General Meeting.
  1. File Form GNL-2 with ROC within 30 days of Circulation of offer letter along with the following attachments:-
  • PAS-4 (Offer Letter).
  • PAS-5 (Complete record of Private Placement).
  1. File Form PAS-3 with ROC within 15 days for allotment of shares along with the following attachments:-
  • List of Allotees.
  • Board Resolution for allotment of shares.

(v).  Holding of Board Meeting (after receiving of allotment money):

  • Present the List of Allotees along with all the required details as per the format prescribed under the Form PAS-5.
  • Pass Board Resolution for allotment of shares within 60 days of receiving of money.
  • Pass Board Resolution for issue of share Certificate. Authorize two directors and a authorized person to sign share certificate.

(vi). Issue share certificates and update minute book and register.

Issue corresponding Share Certificates and make respective entries in Register of Members along with confirming the Distinctive numbers and Certificate Numbers in Form SH-1 within 2 months from the date of allotment of shares.

  1. Document required for Private Placement:
  • Copy Outcome of Board Meeting along with the Draft Notice of General Meeting and Explanatory Statement, Draft Offer Letter, Proposed List of allotees
  • Consent letters from all the proposed allotees
  • PAS-5 including detailed list of allotees.
  • Certified Copy of the Resolution Passed by the Members of the Company along with an Explanatory Statement and approved Offer Letter.
  • Valuation Report as on the date of Allotment by a CA/CS/CMA in practice or a SEBI registered Merchant Banker.
  • Copy of Outcome of the Board Meeting for the Allotment of securities.
  1. Consequences of Non-Compliance:

According to the provisions of section 42 (10), if a company makes an offer or accepts monies in contravention of section 42 of the Companies Act, then, the company, its promoters and directors will lead to a penalty of INR 2 Crore or the amount involved in the offer, whichever is higher. The company is also required to refund all amount to subscribers within a period of 30 days of the order imposing the penalty.

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