Private Placement

Section 42 of Companies Act 2013 and Rule 14 of Companies (Prospectus and Allotment of Securities) Rules apply on Private Placement of Securities.

What is a Private Placement?

It means any offer or invitation to subscribe securities to a specified group of persons by a company through the issue of Private placement offer letter. A Company making this offer has to comply with lesser regulatory provisions.

Points to consider while making this Offer

The Company making the Private Placement of Securities needs to consider the following points:-

  • The Offer of securities through this issue can be made to a maximum of 50 persons in a single offer. However, Company can make this Offer to 200 persons or less in the aggregate in a Financial year. (excluding offer to Qualified Institutional Buyers and employees being offered securities under ESOP)
  • Moreover, the company needs to approve this offer in Special Resolution in the General Meeting before making the Offer.
  • Furthermore, the Company needs to circulate a Private Placement Offer letter among the proposed names allotted in Form PAS-4.
  • A Company can issue the Offer Letter only after it files the Special Resolution with ROC in Form MGT-14.
  • In this case, the monies that the Company receives from the offer shall be kept in a separate bank account in a Scheduled Bank.
  • This offer does not carry any right of renunciation. Hence the person to whom the offer letter is addressed can apply for the securities only.
  • In case of this offer, Company can accept the subscription money from this offer either by cheque or demand draft or other banking channels.
  • The Company shall make the allotment within 60 days of receipt of the application money from the subscribers.
  • Furthermore, if the company is not able to allot securities in 60 days, it shall repay the money of applicants within the next 15 days.
  • The company shall file a Return of Allotment to ROC in Form PAS-3 within 15 days of allotment of securities.
  • The company requires to maintain the complete record of this issue in Form PAS-5.

Private Placement Procedure

The following procedure applies in case of Private Placement Offer.

  1. Board Meeting

    Company shall hold the Board Meeting and shall discuss in the meeting following points:-
    Approve the list of persons to whom a Private placement offer shall be made
    Approve Draft Offer letter
    Call the general meeting

  2. General meeting

    The company shall hold the General Meeting to pass the Special resolution for approving the Private placement of shares.

  3. File Special Resolution

    Company shall file Special resolution with ROC in Form MGT-14 within 30 days of General Meeting.

  4. Offer Letter

    The Company shall circulate the offer letter among the proposed allottees to the securities in Form PAS-4.

  5. Application Money

    Company shall keep the application money of Private placement in a separate Bank Account in a Scheduled Bank Account.

  6. Allotment

    The company shall make the allotment of securities within 60 days of receipt of the Application money.
    If the company fails to do so, it shall refund the money within the next 15 days
    If the company fails to refund money then it shall be liable to repay money along with interest @12% p.a. from the 60th day from receipt of application money.

  7. Return of Allotment

    Company shall file return of allotment in Form PAS-3 with ROC within 15 days of allotment.

  8. Share Certificates

    Company shall issue Share certificates within 2 months from the date of allotment

  9. Update the Register of members

    At last, Register of members will be updated by adding the particulars of the new allottees of securities.

  10. Record of Private Placement

    Company shall maintain the complete record of Private Placement in Form PAS-5.

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FAQs

Can a Company accept the money for subscription of securities offered by Private Placement in cash?

No, a Company making the Private placement offer cannot accept the subscription money in cash. It can accept such subscription money only through cheque or demand draft or any other banking channel.

Is it mandatory to file the return for allotment with ROC?

Yes, it is mandatory to file a return of allotment with ROC within 30 days of Allotment of securities in Form PAS-3.

Is it mandatory to take the approval of shareholders in the meeting for making a Private Placement Offer?

Yes, it is mandatory for a Company making a Private Placement offer to take prior approval of shareholders by passing Special Resolution in the General Meeting.

Private Placement Offer Letter


A Private Placement Offer Letter is the document that a Company issues while making a Private Placement Offer to a specified group of persons. Furthermore, when a Company raises capital through Private Placement, it needs to issue this document in Form PAS-4 and circulate it among the identified persons.

Section 42 of Companies Act 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules 2014 applies while making Private Placement of securities.

Filing of Private Placement Offer Letter

  • The company needs to file the Private Placement Offer letter cum Application in Form PAS 4. Moreover, it should be serially numbered and addressed to the persons to whom the offer is being made.
  • The company requires to send the PP Offer Letter to the proposed allottees either in writing or in electronic mode.
  • Furthermore, it is accompanied by an Application form while sending to the proposed allottees.
  • However, the Private Placement Offer does not contain the right of renunciation. Hence the person to whom it is addressed can only make the application for the securities of the company through the application form accompanied.

Contents of Private Placement Offer Letter

  1. Information related to the Company
    • Name, addresses, and contact details of the company
    • Name, address, and other details of Directors of the Company
    • Business activity of Company
    • Details of default by Company, in case of any.
  2. Particulars of the Offer
    • Date of Board Resolution
    • Date of Resolution of General meeting approving the offer
    • Kind and Class of Securities offered
    • Price of Securities
    • Details of Valuer who values the securities
    • Amount of Capital that Company intends to raise through the offer
    • Terms of raising securities (Duration, Rate of Dividend or interest, Mode of payment, etc.)
    • Proposed Time for which offer letter is valid
    • Purpose and objects of raising Capital
  3. Disclosures with regard to
    • Interest of Directors
    • Litigation or legal action, if any
    • Remuneration of Directors
    • Related party transactions
    • Summary of reservations or qualifications or adverse remarks of auditors
    • Details of any inquiry, inspections or investigations initiated or conducted
    • Details of acts of material frauds committed against the company and action taken by Company
  4. Financial Position of the Company
    • The capital structure of the company
    • Profits of the company
    • Dividends declared by the company
    • Audited Cash Flow Statement
    • Any change in accounting policies
  5. Required Declaration by Director
  6. Date and Place
  7. Attachments
    • Copy of Board Resolution
    • Copy of Special Resolution
    • Optional attachments, if any
Form PAS-4 Private Placement Offer Letter
Download Form PAS-4 directly from here
Download
Form PAS-4 Private Placement Offer Letter
Download Form PAS-4 directly from here
Download

FAQs

Does the Private Placement Offer Letter carry any right of renunciation?

The Private Placement Offer letter does not carry any right of renunciation. The person to whom the offer is made by the company can either accept the offer or reject the offer.

To how many persons can Private Placement offer be made?

The Private Placement Offer can be made to a maximum of 50 persons through a single offer. However, in a particular Financial year, this offer can be made to an aggregate of 200 persons.

Can a Company make a new Private Placement Offer without completing the existing offer?

No, a Company is not allowed to make another Private Placement offer unless it completes the existing one.