Private Placement refers to the issue of securities (shares, debentures, etc.) by a company to a selected group of persons (not exceeding a prescribed number), other than by public offer. This is regulated under Section 42 of the Companies Act, 2013, along with the Companies (Prospectus and Allotment of Securities) Rules, 2014.
It is a popular method used by companies to raise capital without going for public issue, keeping the process limited, faster, and more confidential.
Who Can Issue Shares via Private Placement?
🔹Private Companies
🔹Public Companies
🔹Start-ups and unlisted companies seeking selective investment
However, listed companies must follow SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, in addition to the Companies Act.
Who Can Invest (Subscribers)?
🔹Identified persons (select group)
🔹Not more than 200 persons in a financial year (excluding QIBs and employees under ESOP)
How Does Private Placement Work?
🔹Board Meeting: Approves the proposal for private placement
🔹Special Resolution (SR): Passed at a general meeting of shareholders (if not already approved within the year)
🔹Private Placement Offer Letter (Form PAS-4): Sent to identified investors
🔹Money Received: Only via banking channel (cheque, demand draft, bank transfer) – No cash allowed
🔹Allotment of Securities: Must be done within 60 days
🔹Filing with ROC: Form PAS-3 (Return of Allotment) within 15 days from allotment
Minimum Investment Size
The minimum application size per person shall not be less than ₹20,000 of the face value of the securities.
Reason for Private Placement
🔹Raise funds quickly and efficiently
🔹Maintain control and confidentiality
🔹Avoid cost and compliance burden of public issue
🔹Attract strategic investors, venture capital, or private equity
Types of Securities Issued Under Private Placement
🔹Equity Shares
🔹Preference Shares
🔹Debentures (Secured/Unsecured)
🔹Convertible Instruments (CCPS/CCD)
Penalty for Non-Compliance
🔹Company, promoters & directors are liable to a penalty up to the amount involved or ₹2 crore, whichever is lower
🔹Additionally, the amount raised may be refunded to the subscribers with interest
