Who can be offered securities in a private placement?
A private placement is an offer of securities to persons the board has identified, not to the public. In a financial year the offer for one kind of security goes to not more than 200 persons, and that count leaves out qualified institutional buyers and employees who are offered securities under an employee stock option. The offer is not advertised.
Who may receive the offer?
The board identifies the persons. The 200 is counted separately for equity shares, for preference shares, and for debentures. A fresh offer is not made until the allotment on the previous offer is complete. Each offer needs a special resolution, filed with the Registrar before the offer letter goes out. For non-convertible debentures, one special resolution in a year can cover the offers made in that year. A private company is outside section 180, so the borrowing-limit resolution in that section is not a private-company step.
The offer letter is Form PAS-4. It is numbered, addressed to the person concerned, and sent within 30 days of the names being recorded. It gives no right to renounce. There is no minimum of ₹20,000 of face value. That floor was removed. The company keeps the record of the offers. It does not file the offer letter as a separate form the way an older GNL-2 filing did.
Where does the money sit?
The subscription comes from the bank account of the person subscribing, and the company keeps a record of that account. The company receives the money in a separate account in a scheduled bank. It allots the securities within 60 days of receiving the application money. If it does not, it repays the money within 15 days after those 60 days. If it misses that repayment, it repays with interest at 12 percent a year from the end of the sixtieth day.
The return of allotment, Form PAS-3, is filed within 15 days of allotment, with the list of allottees. The money is not used until the allotment is made and that return is filed. Share certificates for the allotment follow within two months of the allotment. This page does not set out a blank offer letter.
What if the section is not followed?
An offer that does not comply with section 42 is treated as a public offer, and the provisions that govern a public offer then apply. The company, its promoters, and its directors are liable to a penalty which may extend to the amount raised through the private placement or ₹2 crore, whichever is lower. The company refunds the money to the subscribers within 30 days of the order imposing the penalty. A private company is still a private company: it cannot invite the public to subscribe. How a private company is formed is on the registration page.
Frequently asked questions
Four questions cover the old ₹20,000 floor, advertising, using the money, and the penalty.
Is there still a minimum of ₹20,000 a person?
No. That minimum face value was removed. The offer is not tested by a ₹20,000 floor.
Can the offer be advertised?
No. The company does not advertise the offer or use a public channel to tell the public at large about it.
Can the money be used before PAS-3?
No. The money is kept in a separate account in a scheduled bank and is not used until the securities are allotted and the return of allotment is filed.
What is the penalty?
The company, its promoters, and its directors are liable to a penalty which may extend to the amount raised or ₹2 crore, whichever is lower. The company also refunds the money within 30 days of the order.
Sources
A private placement is section 42 of the Companies Act, 2013, read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.