Private placement means an offer or invitation to subscribe or issue of securities to a selected group of persons by a company other than by way of the public offer, through private placement offer-cum-application.
Private Placement Offer cum Application
A company may make a private placement of securities. A company shall issue private placement offer and application to identified persons, whose names and addresses are recorded by the company. The private placement offer and application shall not carry any right of renunciation.
Maximum number of persons to whom offer can be made and other incidental matters
A private placement shall be made only to a select group of persons who have been identified by the Board, whose number shall not exceed 50 or such higher number excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employee’s stock option, in a financial year.
Where a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be the public offer and shall be accordingly dealt.
Applying to the private placement
Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash. Hence all the payments have to be made either by cheque or demand draft or other banking channels or not by cash.
However, a company shall not utilize monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar. The company shall make any fresh offer or invitation concerning private placement unless the allotments concerning any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company. A company may, at any time, make more than one issue of securities to such class of identified persons subject to the maximum number of identified persons as stated above.
The time limit for allotment and payment of interest/refund of subscription money otherwise
A company shall allow its securities within 60 days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the expiry of 60 days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the 60thday.