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Private Placement Vs Rights Issue Under Companies Act, 2013

April 25, 2016     by Sonal Verma

Private Placement and Rights Issues are hotly debated topics for Companies. Companies get confused between the two while opting for further issue of shares.

Private Placement is dealt in Section 42 and section 62(1)(c) of Companies Act,2013 while Section 62(1)(a) deals with Rights issue. Here cited below is a glimpse of basic differences between private placement &rights issue:-

 

S. No. Basis of differences Private Placement Rights Issue

1.

Meaning It means any offer of securities or invitation to subscribe securities to a select group of person by a company other than by way of public offer It means issue of shares to existing shareholders in proportion as the circumstances permit.

2.

Separate Bank Account Share application money is received in Separate Bank Account No need for separate Bank Account in case of issue to the existing shareholders

3.

Valuation Report Valuation report is mandatory in case of Private Placement Valuation report is mandatory only in case of issue to existing non-resident shareholder

4.

Shareholders’ approval Shareholders’ approval is required by way of SR. No need to take approval of shareholders of the Company. Approval of Board is sufficient for right issue

5.

Minimum Subscription It must be of Rs. 20,000 of face value No Minimum Subscription required

6.

Renounce the offer letter No such right is available for the shareholders.However rights for accept/reject the offer letter is available to the shareholders Shareholders have rights to Renounce/accept/reject the offer letter within a minimum period of 15 days subject to the maximum of 30 days

7.

Refund of Share application money If the allotment is not made within a period of 60 days from the receipt of money then, the company shall repay the application money within next 15 days. Further, if the Company fails to repay that amount within the aforesaid period then it shall be liable to repay the amount with an interest @ 12% per annum from the expiry of 60 days.This application money will be treated as deposit after the expiry of 60 days. If allotment is not made within a period of 60 days from the receipt of application money. However, there is no provision relating payment of interest @ 12% nor does it prescribe to repay within next 15 days (after the expiry of 60 days).This application money will be treated as deposit after the expiry of 60 days.

8.

Simultaneous issue of shares As per section 42 (3) of Companies Act, 2013 no fresh offer and allotment can be made unless allotment w.r.t any offer made earlier have been completed There is no such provision in section 62(1)(a) (Rights Issue).

9.

Timeline Since this process involves Shareholders meeting, Valuation Report, etc, it takes more time to do a Preferential Issue. Rights issue process take lesser time.

 

You may also like to read:

  1. Issue of shares by Private placement (includes Preferential Issue)

  2. Essential Conditions for Private Placement


 

8 thoughts on “Private Placement Vs Rights Issue Under Companies Act, 2013

  1. My public company( unlisted) wants to issue shares to another company. Can a public company’s shareholders renounce their shares to the another private or public company?

    1. Yes, a public company’s shareholders can renounce their right shares in favor of any person and person includes a company. As per section 62 sub section 1 clause (a) sub clause (ii), unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favor of any other person.

    1. No, Company shall not receive any money after the time period of offer letter under private placement. The offer letter is approved by shareholders, thus, the company cannot do anything contradictory to the terms and conditions contained in the offer letter. If the company wants to receive money after the time period mentioned in the offer letter, it has to follow the entire procedure again starting from the passing of appropriate board resolution including obtaining the shareholders approval to the offer letter.

  2. I have a Private company .I wish to issue further share capital to existing share holders.Should Company hold Board Resolution or Special Resolution?

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