Private Placement: What is Private Placement, Time Limit, and Rules

What is Private Placement?

Private Placement is a way of issuing securities to a select group of persons without making a public offer. It is regulated by Section 42 of the Companies Act, 2013, and has certain conditions and restrictions. Some of the main features of Private Placement are:

• The number of persons to whom the offer is made shall not exceed 200 in a financial year, excluding qualified institutional buyers and employees of the company.

• The offer shall be made only to those persons whose names are recorded by the company prior to the invitation to subscribe.

• The money received on an application shall be kept in a separate bank account and shall not be utilized unless allotment is made and the return of allotment is filed with the Registrar1.

• The company shall file a special resolution and a letter of offer with the Registrar within 30 days of passing the resolution.

Time Limit for Private Placement

The Company must allot the securities within 60 days after receiving the application money. Otherwise, it must return the money to the subscribers within 15 days after the 60-day deadline. Failing to do so will incur a 12% annual interest on the money, starting from the end of the 60-day period.

Private Placement Rules for Companies in India

• The company can only make a new offer or invitation after finishing or canceling the previous ones.

• The subscribers of the private placement must pay by cheque, demand draft or other bank methods, not cash.

• The application money must be stored in a separate account in a scheduled bank and only used for (a) allotting securities, or (b) returning money if the company cannot allot securities.

• The company cannot use the private placement money until it files the allotment return with the Registrar.

• The company does not need to advertise or inform the public about the issue through any media or agents.