PRIVATE PLACEMENT OF SHARES - Amendment Act, 2017
PRIVATE
PLACEMENT OF SHARES
Companies Amendment
act, 2017
INTRODUCTION:
A business
cannot run without funds. In case of an incorporated company, initial capital
always comes from subscribers to the memorandum. After that company can raise
funds by Loans/borrowings or issue of further securities.
To issue
further shares there are following ways: (i) Right Issue of Shares (ii) Private
Placement of Shares (iii) Preferential Allotment of Shares. In this editorial author shall talk about the
provisions of Private Placement of
Shares after Amendment in Companies Act, 2013.
RECENT AMENDMENTS:
Companies
Act, 2017 has substituted entire Section 42 for Private Placement of Shares.
MCA by notification dated 07th August, 2018 has notified these rules
and shall be in effect w.e.f. 07th August, 2018. Therefore, all the
private placements on or after 07.08.2018 shall be as per New section 42.
MCA has also notified new rules in respect
of Section 42 i.e. Rule 14. Rule 14 has been substituted completely by new
rules notified on 07th August, 2018
MEANING: "private
placement" means any offer or invitation to subscribe or issue of
securities to a [1]select
group of persons by a company (other than by way of public offer) through
private placement offer-cum-application, which satisfies the conditions
specified in this section 42 read with rules.
CONDITIONS FOR PRIVATE PLACEMENT OF ISSUE OF SHARES
1.
Maximum No. of persons to whom
offer can be made:
§ An offer can be made under a Private Placement
Offer Letter to not more than 200 people in a financial year.
§
The 200 people
limit excludes Qualified Institutional Buyers and Employees of the
Company being offered securities under a scheme of employee stock option in
terms of provision of clause (b) of sub section 62(1)
Question:
A.
Whether Limit of 200
persons shall be calculated individually/ jointly for each type of securities?
The
restriction of 200 persons would be reckoned ‘Individually’ for each kind of security
that is ‘Equity Shares, Preference Shares or Debentures’.
If offer is made to
more than 200 peoples:
If a
company, whether listed or unlisted makes an offer to allot or invites
subscription, or allots, or enters into an agreement to allot, securities to
more than 50 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 an offer to
the public and shall accordingly be governed by the provisions of Part I of
Chapter III.
[Any offer
or invitation not in compliance with the provisions of this section shall be
treated as a public offer and all provisions of this Act, and the Securities
Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India
Act, 1992 shall be required to be complied with].
2. Offer to Selected Group of Person:
The offer
shall be made only to a Select Group of person, who has been identified by the Board.
Question:
B.
Whether Board can
select group of persons and issue securities by Circular resolution?
As per
Section persons should be identified by the Board. Board of Directors can
identify the person by circular resolution as well as by passing of resolution
in Board Meeting.
However, as
per Section 179(3) Company have to hold Meeting of Board of Directors for issue
of securities.
Therefore,
one can opine that board of Director should hold a meeting of Board of
Directors to identify the persons and issue of securities.
C.
Whether Company needs
to file e-form MGT-14 passing of Board resolution for issue of securities?
As per
Section 117 every resolution passed u/s 179(3) required to file with ROC in
e-form MGT-14 within 30 days of passing of Board Resolution.
However,
Private Companies are exempted to file such resolution in e-form MGT-14 due to
Exemption notification dated 05th June, 2015.
3. Offer to be previously approved by Special Resolution:
As per
rule, a Company shall not make an offer or invitation to subscribe to
securities through Private Placement unless the proposal has been previously
approved by the shareholders of the Company, by a special resolution for each
of the offers and invitations.
Company has
to file e-form MGT-14 within 30 days of passing of special Resolution.
**NOTE:
Company
shall issue private placement offer cum application letter only after the
relevant special resolution or board resolution has been filed with ROC in
e-form MGT-14. (rule 8)
D.
Whether Company can
issue Private Placement offer letter before filing of e-form MGT-14?
As per rule
8, Company can’t issue private placement offer letter before filing of e-form
MGT-14.
If Company
issue private placement offer letter before filing of MGT-14 then it shall be
non compliance of Rule 8.
Consequences:
If a
company or any officer of a company or any other person contravenes any of the
provisions of this Act or the rules made thereunder, and for which no penalty
or punishment is provided elsewhere in this Act, the company and every officer
of the company who is in default or such other person shall be punishable with
fine which may extend to ten thousand rupees, and where the contravention is
continuing one, with a further fine which may extend to one thousand rupees for
every day after the first during which the contravention continues.
4. Use of Allotment Money:
A company
shall not utilize monies raised through private placement unless allotment is
made and the return of allotment (i.e. e-form PAS-3) is filed with the
Registrar in accordance with sub-section (8).
This is major change by Amendment Act, 2017.
After amendment without filing of e-form PAS-3 for allotment of Shares Company
can’t use the funds received from subscription.
5. Offer counted separately for each kind of
security:
The restriction under Rule 2 would be reckoned individually
for each kind of security that is equity share, preference share or debenture.
6.
No Renunciation:
As per sub section 2, the private placement offer can
application shall not carry any right of renunciation.
As per rule 3, No person other than the person so addressed
in the private placement offer cum application letter shall be allowed to apply
through such application form.
Therefore, it is
clear that right of private placement of shares can’t be renounced.
7.
Separate Bank Account:
ü
The payment for subscription
should be through the bank account of the person subscribing to the securities.
ü
The company should keep a record
of the bank account from where such payments have been received.
ü
No cash transaction is permitted.
ü
The money so received shall be
kept in a separate bank account of the company and utilized only for allotment
(or repayment).
ü
Payment may be made either by
Cheque or Demand Draft or other banking channel.
Note: this provision shall not be applicable in case of “issue of shares for
consideration other than cash”.
8.
No further offer till completion of
earlier offer:
As per Sub section 5, No fresh offer or invitation under
this section shall be made unless the allotment with respect to any offer or
invitation made earlier have been completed.
E.
If a Company give
offer for Equity shares, such offer is pending. Whether Company can issue offer
for Preference shares simultaneously?
As per
language of sub section 5, if any offer of any security is pending, company is
not allowed to issue other security until unless allotment is made for pending
offer or invitation has been withdrawn or abandoned by the Company.
Exemption Condition: Subject to maximum number of identified person under section
42(2) a Company may, at any time, make more than one issue of securities (that
is, of equity share, preference share or debenture) to such class of identified
persons as may be prescribed.
In a
welcome move Companies would be allowed to make offer ‘Multiple Security
Instruments Simultaneously’.
Note:
if the
number of persons to whom the offer is made does not exceed 200, then the
company may, at any time, make more than one issue of securities to such class
of identified persons. Prima facie, it appears that this proviso allows a
company to make simultaneous offers of different kinds of securities as long as
the number of applicants doesn’t cross 200.
In other
words, a group of investors in a private equity transaction can be termed as a
‘class of identified persons’ (as provided under proviso of revised sec 42(5))
and then they can be offered two different types of securities simultaneously
or some can be offered one type of security and some can be offered a different
type of security
9. Where jointly, the money from the bank account first person:
That monies
payable on subscription to securities to be held by joint holders shall be paid
from the bank account of the person whose name appears first in the application.
Minimum amount of offer for an individual: (omitted)
The most important amendment is the one carried
out in the revised rules w.r.t. value of offer or invitation per person. The
earlier rules prescribed a restriction on the value of offer / invitation, per
person to be a minimum investment size of Rs. 20,000/- of face value of such
securities. This created a huge issue especially for angel and venture capital
transactions wherein the number of shares issued to investors was less but at a
very high premium. This restriction has now been done away with. In other
words, there is no minimum investment size in case of private placement of
securities u/s 42 read with Rule 14.
10.
No advertisement of offer:
No company
offering securities under this section shall release any public advertisements
or utilize any media, marketing or distribution channels or agents to inform
the public at large about such an offer.
11. Mode
to issue offer letter:
The offer letter shall be sent to
persons, either in writing or in electronic mode within 30 days of recording
the name of such person.
12. Valuation
report:
The price of the security has to be justified and the
inference is that, it requires a valuation report by a Registered Valuer.
13. Days in which share should be issued:
Allotment
has to be carried out within 60 days of receiving of money.
14.
If not allotted within 60 days:
If allotment is not made within 60 days then till 75th day
the monies have to be repaid. Failure to repay has a liability of interest at
12% pa.
15. Minimum gap between two offers.
There is no condition in the Act or rule regarding minimum
gap between two offers. A company can come with new offer after completion of
earlier offer.
16. Maximum no. of offers in a Financial year:
There is no condition in the Act or rule regarding maximum
Number of Private Placement offers in a financial year. According to this
company can come with private placement offer in a financial year any no. of
times. But remember an offer can’t be made more than 200 peoples in a financial
year.
17. Non-compliance:
If conditions of Section-42 read with rule 14(1) of
Companies (Prospectus and Allotment of Securities) Rules, 2014 has not been
complied with than that can lead to a penalty of INR 2 crores or the amount
involved in the offer, whichever is lower.
18. Filing
of e-form PAS-3:
Return of
allotment shall be filed with ROC within 15 days of allotment in PAS-3 along
with a complete list of allottee containing:
§
The full name, address, PAN and
email ID or such security holder;
§
The class of security held
§
The date of allotment of
security;
§
The number of securities held,
nominal value and amount paid on such securities; and
§
Particulars of consideration
received if the securities were issued for consideration other than cash.
F.
Provisiosn of this
section shall not applicable on following Companies?
ü NBFC Companies
ü Housing Finance Companies
STEP
POCEDURE OF PRIVATE PLCEMENT
STEP-1
Call Meeting of Board Director:
ü Issue Notice of Board Meeting to all the
directors of company at least 7 days before the date of Board Meeting.
ü Attach Agenda of Board Meeting along with
Notice.
STEP-1I
Hold the Board Meeting:
ü
Check
the quorum of Board Meeting.
ü
Identify
the person to whom you will issue shares.
ü
Prepare
list of such persons.
ü
Prepare
Private Placement offer-cum-application.
ü
Pass
Board Resolution for approval of offer-cum-application.
ü
Issue Notice of General Meeting. (As per
Section- 101(1) issue notice of General Meeting at least 21 days before General
meeting).
ü
Notice
shall specify place, date, day and the hour of the meeting and shall contain a
statement on the business to be transact in the such meeting. [Section-101(2)]
ü
Authorize
a director of company to issue notice of General Meeting.
STEP-1II
Hold
Extra Ordinary general Meeting:
ü Check the quorum of
Meeting.(Section-103).
ü Present Offer Letter in
PAS-4 before the members of the meeting.
ü Pass Special Resolution
for Private Placement of Shares..
STEP-1V
Circulate
offer-cum-application:
ü
Offer
letter shall be accompanied by an application form serially numbered and addressed
specifically to the person to whom the offer is made.
ü
Offer
Letter sent either in writing or electronic mode.
ü
Issue
offer letter within 30 days of General Meeting/recording the name of such
person.
STEP-V
File Form with Registrar:
ü File MGT-14 with Registrar
within 30 days of passing of Special Resolution.
Attachments:
ü Notice of General
Meeting along with Explanatory Statement.
ü Certified True copy of
Special Resolution.
ü Minutes of General
Meeting
STEP-VI
Open
Separate Bank Account:
ü The payment to be made for subscription to
securities shall be made from the bank account of the person subscribing to
such securities.
ü The company shall keep the record of the Bank
Account from where such payment for subscription has been received.
STEP-VII
File
Form with Registrar:
ü File PAS-4 & 5 with
Registrar within 30 days of circulation of offer letter.
STEP-VIII
Call Board Meeting after receiving of allotment
of money.
ü Issue Notice of Board
Meeting to all the directors of company at least 7 days before the date of
Board Meeting. [Section-173(3)]
ü Attach Agenda of Board Meeting along with
Notice.
STEP-IX
Hold the Board Meeting:
ü Check the quorum of
Board Meeting.
ü
Present
List of Allottes before the Meeting.
ü
Pass
Board Resolution for allotment of shares (within 60 days of receiving of
money).
ü
Pass
Resolution for issue of Share Certificate in same Meeting.
ü
Authorize
to two directors and a authorize person to sign share certificate.
STEP-X
File form with ROC:
ü File PAS-3 with
Registrar of Company.
ATTACHMENTS:
Ø List of Allottes.
Ø Board Resolution for
allotment of Shares.
STEP-XI
Issue Share Certificate:
ü
Issue
Share Certificate in Form- SH-1 (As per Section-56 with in 2 (two) months from
the date of allotment of shares.
Note:
v Special Resolution for Issued of Debenture: In case of Offer or
invitation for non-convertible debenture, it shall be sufficient if the company
passes a single Special Resolution of all the offers or invitation made for
debenture during a year. No need to pass Resolution again and again for the
Private Placement of Debenture in a year.
v Date of private
placement offer-cum-application shall be deemed to be
the date of circulation of private placement offer letter.
CONCLUSION
The Company Amendment Act, 2017 has
made changes with intent to liberalize the business model that India
propagates. The ease in raising funds for companies and reducing the time taken
in the process shall inevitably increase the allure of investing in India.
Without prejudice, it can indubitably be stated that government’s ease of doing
business campaign is on the right track.
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES
Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
very helpful blog......
ReplyDeletePlz clarify whether
ReplyDeletethe offer made to not more than 200 person or 50 person?