PRIVATE PLACEMENT – CRUX
- It shall be made only to the selected group of persons who are identified by board first and such number of persons must not 200 in a financial year.
- Issuer Company must issue Private Placement Offer Letter (PPOL) to identified persons. Such PPOL shall not contain any right to renunciation.
- PPOL must be issued only after filing of Special Resolution or Board Resolution as the case may be.
- Application money shall require to be paid through banking channel only.
- Issuer Company must open separate bank account in a scheduled bank for receiving money against allotment of securities.
- Issuer Company shall allot its securities within 60 days from the date of receipt of the application money and if the company is not able to allot within 60 days, it shall repay the application money within 15 days from the expiry of 60 days.
- Issuer Company must file form PAS-3 for return of allotment within 15 days.
- Issuer Company can’t utilize the money till return of allotment is filled with ROC.
- Issuer Company must maintain complete record of private placement in PAS-5.
- No fresh offer or invitation shall be made unless the allotments with respect to any previous offer or invitation have been completed.
CHANGES DONE THROUGH COMPANIES (AMENDMENT) ACT, 2017 and Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018.
i. Dispensation with minimum investment size requirement
The CAA, 2017 have dispensed with the earlier requirement of the value of offer or invitation per person to be of an investment size of not less than Rs.20000 of the face value of the securities.
ii. No Renunciation right
Where earlier the Act was silent on the right of renunciation in the hands of the investor, the CAA 2017, explicitly provides clarity on the fact that the private placement offer letter and the application shall not carry any renunciation rights. Private placement being an issuance of securities to a specific pre-identified person only, this was implied that the offer would not carry the right of renunciation.
iii. Relaxation in passing of shareholders’ resolution in case of private placement of non-convertible debentures (NCDs)
Earlier, a shareholders’ resolution was required to be passed once a year for private placement of NCDs during that year. The Recent Amendments permit private placement of NCDs pursuant to board resolution without obtaining shareholders’ resolution so long as the proposed amount to be raised does not exceed the borrowing limit specified under Section 180(1)(c) of the Companies Act, 2013. However, borrowing limits are to be approved by the shareholders of the issuer company.
iv. Discontinuation of filing GNL-2
Earlier the Company was required to file private placement offer letter and complete record of private placement with the Registrar within 30 days of circulation of the offer letter. However, the requirement of the same has been done away with. This will surely reduce the compliance burden of the companies.
v. Reduced timeline for filing Return of Allotment in PAS-3
The Amendment Act 2017 provides for filing the return of allotment within 15 days from the date of allotment compared to earlier requirement of 30 days.
vi. No utilization of money received from private placement unless PAS-3 filed
A very significant change in CAA, 2017 is that the company making the offer or invitation for subscription of securities through private placement is not allowed to utilize the money raised through private placement unless the return of allotment is filled with ROC.
vii. No requirement to file Form PAS-4 and PAS-5 with the RoC and SEBI:
Earlier, issuers were required to file private placement offer letters (Form PAS-4) and a record of persons to whom such offer is made (Form PAS-5) with the ROC and SEBI (in case of listed issuers). The Recent Amendments do away with this filing requirement.
viii. Relevant date for determining issue price:
In line with the SEBI regulations for listed companies, unlisted companies have also been required to determine the relevant date (being 30 days prior to the shareholders meeting for determining the issue price for a preferential issue). This is a welcome change as it brings in a more definitive date for determining the floor for the issue price.
