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Issue of shares by Private placement (includes Preferential Issue)

May 30, 2014     by CS Samrish Bhanja

Preferential Issue – Procedure

(updated upto 18th March, 2015)

Compiled from provisions of Section 42 and Section 62 of the Companies Act, 2013 read with Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 and Rule 13 of Companies (Share Capital and Debentures) Rules, 2014. 

a)      Shareholders meeting

1.  The issue has been authorized by a special resolution of the members (Sec 62(1)(c)). File form MGT-14 with ROC with copy of special resolution within 30 days.

2.  The company shall make various disclosures in the explanatory statement to be annexed to the notice of the general meeting pursuant to section 102 of the Act as stated in Rule 13 of Companies (Share Capital and Debentures) Rules, 2014. Among various details, the names of the proposed allottees, the change in control and the pre & post shareholding pattern, shall also be disclosed.

3.  The allotment of securities on a preferential basis made pursuant to the special resolution shall be completed within a period of twelve months from the date of passing of the special resolution.

4.   No fresh offer or invitation under this section 42(3) of the Companies Act, 2013 shall be made unless the allotment with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company

b)     Registered valuer

5.  The price of the shares or other securities to be issued on a preferential basis shall be determined on the basis of valuation report of a registered valuer;

However, in case of preferential issue by a listed company, the price of the shares to be issued is not required to be determined by the report of a registered valuer.

c)      Offer Document (PAS-4) and complete record (PAS-5)

6.  Issue of a private placement offer letter. (Sec 42(1)). For the purposes of sub-section (1) of Section 42, a company may make an offer or invitation to subscribe to securities through issue of a private placement offer letter in Form PAS-4.

7.  A private placement offer letter shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons. (Section 42(7) read with Rule 14(1)(b) of Chapter III)

8.  The company shall maintain a complete record of private placement offers in Form PAS-5.

9.  A copy of such record (PAS-5) along with the private placement offer letter in Form PAS-4 shall be filed with the Registrar within 30 days of circulation date. Date of private placement offer letter shall be considered as circulation date.

However MCA gave a clarification dated 18.03.2015 which states that in case of any preferential offer to one or more existing members, there is no requirement to make an offer in Form PAS 4 neither is a requirement to file it with the RoC / SEBI along with record of Private Placement i.e PAS-5.

d)     Share Application Money

10.    A company making an offer of securities shall allot its securities within sixty days from the date of receipt of the application money for such securities. If not able to allot, return application money within 15 days failing which interest shall be payable by the company @ 12% p.a.

11.  Monies received on application under this section shall be kept in a separate bank account in a scheduled bank.

12.  The payment to be made for subscription to securities shall be made from the bank account of the person subscribing to such securities and the company shall keep the record of the Bank account from where such payments for subscriptions have been received. (Rule 14(2)(d) of Companies (Prospectus and Allotment of Securities) Rules, 2014)

13.  The securities allotted by way of preferential offer shall be made fully paid up at the time of their allotment.

 e)      Return of Allotment

14.  A return of allotment of securities under section 42 shall be filed with the Registrar within thirty days of allotment in Form PAS-3(along with a copy of valuation report).

Penalty

If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty (Sec 42(10)).


 

127 thoughts on “Issue of shares by Private placement (includes Preferential Issue)

  1. Is it mandatory to attach valuation report for valuation of consideration in Form PAS-3 in case of prefrential allotment for consideration other than cash?

    1. Yes it is required as per Rule 12(5) of Companies (Prospectus and Allotment of Securities) Rules, 2014. The price of the security has to be justified and the inference is that, it requires a valuation report by a Registered Valuer

  2. Psl guide if compulsory convertible pref shares can be issued through private placement as preferential offer is more lengthy process. Also under preferential offer, the AoA should have authorizing articles, does it mean that a specific article should be there stating preferential offer

    1. Yes, Articles should have the authorization for issue of Compulsory Convertible preference shares.
      In case, Company issues equity shares or any convertible securities, the company needs to comply with Sec 62 (1)(c) [relating to further issue of share capital ] and Sec 42 [relating to Private Placement] of the Companies Act 2013, but if a company is issuing non-convertible preference shares or any non-convertible securities it needs to comply with Section 42 only and not Section 62(1)(c).

  3. Sir, As per search, We have few unanswered questions , Please comment on the following:-
    1)As per Act, Allotment of shares for Private Placement must be done in 60 days , if not shares must be return 75 days to investors. But experts says that their must be a gap of 60 days between two private placement.

    For Above , Nothing like mentioned in the Act , only 60 days for allotment is mentioned . If we allotted the shares day after the offer is closed and money is received , so can we will move further for new private placement offer ?

    1. As per Provisions of Section 42(3) of Companies Act, 2013 the only requirement is that “No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.” From this we can clearly say that there is not bar for maintaining any gap in terms of minimum number of days between two private placements and the only limit is either to complete the offer by allotting shares or cancel the offer by withdrawing the same by Company.

      1. Dear Sir,

        If we are carrying out an issuance of Compulsorily convertible debentures, do we still need to provide pre and post issuance shareholding as a disclosure or would that requirement be limited to issuance of shares.

        1. Yes, As per the Rule 13 of the Companies (Share Capital and Debentures) Rules, 2013 and format of PAS-4, the capital structure of the company is to be disclosed in tabular form with the following details:
           Pre-issue of Debentures
           Post-issue of Debentures
           After conversion of Debentures

    2. As per rule 14(2) (c) of companies (prospectus and allotment of securities) rules 2014? “the value of such prefrential offer per person shall be with an investment size of min Rs 20000 of face value of the securities”

      Does it mean investment size should be 20000 or face value of shares offerd should be 20,000?

      I need to issue only 150 Shares FV 10/- for consideration other than cash, then how can i do the same in case of pvt Ltd? I cannot go for Right issue as the shares are to be issued for other than cash.

      1. The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities. In your case, the value of offer is 1500 which is below the minimum requirement. Hence, please increase the value of your consideration (asset) to Rs. 20,000 of face value of the securities.

  4. In PAS 4 we are mentioning the offer period 30 days and circulating the same. Can we close the offer period in 15 days?

    1. No, once the offer period has been communicated to the proposed person then it can’t be reduced or closed prior to that. As per notification issued by MCA dated June 05, 2015, Period of Offer can be reduced before communicating the same to the proposed allottees in case of private companies if 90% of the members have given their consent in writing.

  5. Dear Sir

    If a preference shares are issued at par/face value under Preferential Allotment method, is it necessary to obtain Valuation Report?

    1. Yes, it is necessary to obtain the valuation report because as per Rule 13(2)(g) of the Companies (Share Capital and Debentures) Rules, 2014, the price of shares to be issued on preferential basis shall be determined on the basis of valuation report. Also, as per Rule 13(3) of the said rules, the price shall not be less than the price determined on the basis of valuation report.

      1. Sir,
        As quoted by you, if the price shall not be less than the price determined onthe basis of valuation report. So, can the price be higher than that of the one valued in valuation report. Say for example, if the valuation report arrives Rs.9/- as the Fair market value, can the shares be issued at Rs.10/-?

        1. As per Rule 13(3) of Companies (Share Capital and Debentures) Rule, 2014 read with Section 53 of the Companies Act, 2013, price of shares to be issued by private placement (including Preferential Issue) shall not be less than the Face Value and price determined in valuation report by a registered valuer. In your above example, shares can be issued at Rs. 10 provided that the Face Value of share shall not be less than Rs. 10/-. Further, amount higher than the fair market value shall be taxable to Company as per sec. 56(2) (vii b) of the Income Tax Act, 1961.

  6. Rule 13(3) of The Companies (Share Capital and Debentures) Rules, 2014 states that the price of shares to be issued on preferential basis shall not be less than the price determined on the basis of valuation report.

    Can you please guide regarding a case where the company has issued shares at a price higher than the price determined on the basis of valuation report??

    1. Yes, as per Rule 13(3) of The Companies (Share Capital and Debentures) Rules, 2014 the company shall not issue share at price less than the price given under valuation report. But it can issue share at a price higher than the amount mention in valuation Report. It depends upon the goodwill, brand image, business prospects, quality of management and many other factors. It primarily depends on the terms agreed between the buyer and seller. Examples would be numerous like in cases of Start-ups, e-commerce, etc.

  7. facts: Private Placement
    FV: Rs. 10/-
    Premium: Rs. 190/-
    Offer letter issued on 18.01.2017 for Rs. 6 lakh
    1st payment of Rs. 2 lakh received on 23.01.2017 & 2nd payment of Rs. 2 lakh received on 27.01.2017.
    total amount received till date is 4 lakh making face value of Rs. 20,000/- so company allotted shares on 7.01.2017.
    Now the investor wants to give further 2 lakhs making face value of equity Rs. 10000/-.
    Can company allot shares amounting to Rs. 10000/- under same offer or it is violation of Rule 14 (2) (C) of Companies (prospectus of securities), rules 2014

  8. Sir,
    1. A Private Company has taken loan from existing shareholder and a relative of that shareholder. Can we convert that loan into shares by alloting shares by preferential allotment basis? As at that time no SR was passed for such conversion. Can we convert that loan into shares.
    2. N that Rs.20,000 investment size limit is on per share?

    1. 1. It is very clear from Sub Section (3) of section 62 of the Companies Act,2013 that nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loans into shares in the company: Provided that the terms of issue of such debentures or loan containing such an option have been approved before the issue of such debentures or the raising of loan by a special resolution passed by the company in general meeting. As your company has not passed SR then the company cannot convert its loan into share.
      2. Rs. 20,000 face value investment size limit is on per applicant.

  9. Dear Sir,
    My query is since rule 14 mentions that the investment size should be not less than 20,000 of the face value of the securities. Does the word securities include only one class of Security or if we issue two class i.e. equity and preference , then does it include the total of both. kindly reply asap.Thanks in advance

    1. The securities includes only one class of securities. And the same includes the total of one class only. Also please note that, you can’t proceed for another issue until you have completed the earlier issue.

  10. Dear Sir,
    The company had obtained shareholders approval for certain number of shares for private placement of shares and accordingly circulated PAs-4 to the investors along with share application form and other enclosures.
    Now, investors wants to subscribe for lessor number of shares as offered to them and is demanding for re-circulation of PAs-4 which in my opinion is not valid. What is the way out to overcome this situation ?

    1. There is no need to circulate another PAS-4 they can apply as per their wish in application form which is circulated to Investor.
      Please see the terms and conditions of the company while issuing PAS-4
      In most of the cases, the proposed allotteeshave the option to apply for lesser no. of shares.

  11. Dear Sir,

    My query is can an existing loan standing in the books of the Company be converted into Preference Shares, can it be treated as allotment of securities for consideration other than cash under Companies Act, 2013?

    Brief Facts;

    One of our Public Company and a Private Company which is a Subsidiary of a Public Company is having outstanding Loan standing in the their books since 2012 and the company has paid interest on regular interval on the same. Presently, due to financial crunch, the Company is unable to pay the interest on the outstanding Loan, hence the Company with due consent of the Lender has decided to allot the Preference shares against the outstanding Loan in compliance with the preferential allotment guidelines as prescribed in the Companies Act, 2013 read along with relevant Rules framed thereunder. Can it be treated as allotment of securities for consideration other than cash but the contract containing the terms for conversion of the Loan into security is not executed earlier.

    Understanding as per Bare Reading of the Law with the Rule:

    As per the bare reading of the Companies Act, 2013 along with the relevant Rules framed thereunder, “securities can be allotted for consideration other than cash, if there shall be attached to the Form PAS-3 a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration.

    However, where a contract referred above is not reduced to writing, the company shall furnish along with the Form PAS-3 complete particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899).”

    My Query:

    In light of the above facts & provisions, can we allot the preference shares to the Lenders vide executing an Agreement in current date with the Lender for converting the Loan into Preference Shares on preferential basis?

    Can the aforesaid allotment would be in due compliance of the law????

    Kindly give your valuable advice/suggestions. Your prompt response in the instant matter is highly solicited.

    1. First of all you have to repay the loan amount through the banking channel, after that you can immediately proceed for issue of preferential shares through the private placement to the same lender. Secondly, your Company can’t convert the loan amount into preference shares because have not complied with section 62(3) at the time of taking loan i.e. shareholders approval was not taken at the time of taking loan.

  12. Sir, Please confirm whether the condition of minimum investment size of Rs. 20000 face value per person is also applicable in case of preferential issue under section 62(1) (c).

  13. sir,

    in our case GNL-2 was filled beyond 30 days. offer was on 30/12/2015 while GNL-2 was filed on 06/04/2016. it came for resubmission along with CH-1. now we are supposed to file new GNL-2 along with CG-1, what is the best option to do this now..what reasons we can write for delay.

    1. As per Sec 62 (1)(a)(ii) of Companies Act, 2013, Unless the Articles otherwise provide, the offer letter is deemed to include a right to renounce. A shareholder may renounce the shares offered to him/her or any of them in favor of any other person. He may either renounce his entire offer or a part of it.

      Conclusion: A shareholder may renounce his shares to more than one person only if AOA or Letter of Offer contained any such statement.

  14. Sir,
    Please let me know the procedure of issue of Preference share on preferential basis??
    1. Do we can allot share at Rs 135 to investor in newly incorporated Company.
    2. Valuation report is mandatory?? Can share be issued above the price determined by valuer?
    3. Requirement of Minimum size of investment amount i. e Rs. 20000 face value is also applicable or not?
    4. Who can be valuer?? New CA can give certificate or not??

    1. 1. Value of shares will depend upon the valuation report.
      2. Valuation report is mandatory in preferential issue. yes the shares can be issued at value greater than the value determined by the valuer.
      3. The minimum allotment size of Rs. 20,000 is applicable.
      4. Valuer can be either of the 2:
      a) Merchant banker registered with SEBI
      b) CA in practice having minimum experience of 10 years.

  15. Sir I want to know that in case of Preferential issue what documents are required by company from proposed allotee for proposed allotment ?
    If allotee is:
    a)Company
    b)Individual
    c)HUF

  16. A Company has taken a loan from existing shareholders of the Company. We want to convert the same in to equity.Can we do Rights issue or we need to do preferential allotment.

    1. Section 62(3) provides that, in order to convert loan into Equity, the terms of such loan containing such an option has to be approved before the issue of such loan by a Special Resolution.
      If no SR passed at that time, loan cannot be converted into ESC. However allotment of shares can be made by : –
      1. Right Issue (new shares must be offered to all shareholders)
      2. Private Placement

  17. Whether non filing/ delay in filing of PAS -4 with in 30 days from the date of offer would attract the penalty under section 42(10)of the companies act 2013,or only additional fees would be payable

    1. Non-filing/ delay in filing of PAS-4 attracts additional fees only. Penalty defined under Section 42(10) of Companies Act 2013 is when companies makes an offer or accepts monies in contravention of Section 42.

  18. For Issue of preference share in private company on preferential basis ie to selected persons other than existing equity shareholder without giving offer letter procedure givan in section 42 ie private placement procedure whether this procedure are required to be follow? beacuse section 62(1)(c) applicable only for equity share holder and in our case we are issuing preference shares and that is to the specified people and not by fiving offer letter…

    1. Section 62(1)(c) states “issue of further shares”.
      Nowhere is it mentioned that the issue is to be done for equity shares only. Therefore you can issue preference shares through Preferential issue.

  19. sir,i wanted to know if company issue shares to existing shareholders through preferential issueit is notrequired to file PAS -4 & PAS5 but what about Special resolution whether it is required ornot pl guide me in detail. for issue on pref basis to existing shareholders what procedure is adopted

    1. For Preferential issue to existing shareholders Special Resolution needs to be filed in MGT-14. Filing of PAS-4 and PAS-5 is not mandatory but complete record of private placement is required to be maintained in PAS-5. lastly filing of PAS-3 is mandatory as it is return of allotment. Please refer to the amended note above for more information.

  20. If co intends to issue OCDs under section 42. is approval under 62(1)(c) required to be taken along with valuation report. if yes valuation to for debenture or shares which may be issued on exercising option.

  21. In a private company, its holding company has stake of more than 95% and wants to issue more equity shares to the holding company. Can I follow preferential allotment, which says company select a group person i.e. holding company without offering shares to the company holding 5% shares, thus no calculation of ratio required. Also, preferential allotment made to the exiting shareholder, requirement of PAS 4 & 5 is not mandatory as per the Amendment Act.
    Need guidance…

    1. Yes, you may follow the preferential allotment process thus excluding the shareholder holding 5% shares. Further there is no requirement to file Form PAS-4 & PAS-5 for existing shareholders after the amendment dated 19.03.2015 of Companies Share Capital and Debentures Amendment Rules 2015.

  22. Sir I want to know that a private limited company has application money pending allotment. So before right issue u/s 62 can it use this appliacation money for other purposes.

    1. Even though Section 62 of the Companies Act, 2013 is silent as to the use of share application money pending allotment under a rights issue, the use of the same for any other purposes is prohibited under Rule 2 (1) (c) (vii) of Companies (Acceptance of Deposits) Rules, 2014 wherein its use for any other purposes other than allotment shall categorise such money as a deposit.

  23. Can preferential allotment be done by receiving the amount in cash.? As section 62(1)(C) says either for cash or for consideration other than cash.

  24. I wants to know whether the loan taken from the directors can be utalised against the issue of shares made as per section 62 1(a)

    1. If there will be a provision in the terms of loan agreement and also S.R. was passed for the same during that time then only co. can issue shares to that particular director

  25. Dear Sirs,
    I’m a shareholder of a family owned private limited company in Mumbai ,wherein last week I’m in receipt of a cheque from the company .When had a verbal discussion with the Company Director,I was informed that this was unpaid capital returned back.
    My question here was to know :::
    Whether the company could return the same after almost 20 years
    I believe this money was paid for a reason was it for the issue of shares ?
    If this is the case shouldn’t I be allotted the shares ,Is this a right practise the company is adopting and is this an exercise
    to reduce my shareholding
    What are the remedies ??
    Kindly help

  26. Can allotment in tranches be made through one offer letter. I mean suppose in case of private company we made an offer of 1 cr., received share application for 50 Lakhs, done the allotment of 50 lakhs, now do we need to make another offer letter for remaining 50 lakhs or can we allot through same offer letter if receives the money before the validity period of SR.

  27. If a Private Limited Company proposes to issue further shares to persons other than its existing members or partly to existing members or partly to other on preferential basis u/s. 62(1)© of Co. Act, 2013, then should company need to comply the provisions of section 42 read with rule 14 of Companies (Prospectus and Allotment of Securities)Rules, 2014 ? Because as per definition of Private Company u/s. 2(68)(3) prohibits any invitation to the public to subscribe for any securities of the company.

    1. Preferential issue to persons other than existing shareholders will not come under the category of public issue unless you send specific invitations to the public (which is prohibited). And the provisions of Section 62(1)(a) and Section 42 of Companies Act, 2013 will need to be adhered to as your case falls under the category of private placement if issue is made to new shareholders.

  28. Can private Limited and Unlisted Public Company can convert unsecured loan taken from shareholders and person other than shareholders into Equity Shares by issue of further shares under provisions of section 62 (1)(c )of companies ct, 2013 and If yes then company need to comply with the provisions of section 42 of Co. act 2013 for issue of shares to creditors of unsecured loans ?

    1. Unsecured loans can be converted in equity provided that the terms of agreement at the time of taking the loan provided for such conversion and the same was approved by a special resolution. And yes, Section 42 of Companies Act, 2013 will also be applicable as equity will be issued to new shareholders.

  29. A company is issuing Equity Warrants to non promoters (Specific Allotees) u/s 62 of companies act and Chapter VII of ICDR. it has decided to hold EGM in mid March 2015 and notice is out for circulation. should it prepare PAS-4 ? what will be date of Offer letter in PAS-4 ?

    1. A private placement offer letter (PAS-4) shall be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons.

    1. Yes, unsecured loans from Directors can be converted into equity provided that the terms of issue of the loan contains an option of conversion and the same has been approved by a special resolution in a general meeting. The point to be noted is that such special resolution should have been passed at the initial stage itself.

  30. after taking the approval of shareholders and after giving the offer through pas 4 if any proposed allotee is not interested then what to do

  31. pas-4 has to be issued within 30 days of recording the names so in this i want to know recording of names means date of board meeting or date of egm

  32. Sir,
    can an offer letter for private placement call for investing in two different class of securities, eg – equity and preference shares. or two different offer letter will have to be issued?

  33. if a company wants to issue shares other than to the existing shareholders of the company and the shares will have different premium for different person. is it possible to have that many offer letters issued at a time through private placement??

    1. If there will be different premium for different person than only one Letter of Offer will be required and all the details regarding this is to be given in a tabular form in the same letter of offer.
      and FYI, an abstract of Companies (Share Capital and Debentures) Amendment Rules, 2014:-
      “The price of shares or other securities to be issued on preferential basis shall not be less than the price
      determined on the basis of valuation report of a registered valuer.”

      1. Sir, how old the valuation certificate may be i.e. if the valuation certificate was obtained in the month of Feb ( on the basis of Financial Figures of December 31, 2016) and EGM resolution was passed in May, does the Valuation obtained in Feb hold good?

        1. It is nowhere prescribed the time limit for how old the valuation certificate should be but it is advised that the valuation certificate should not be older than 6 months from the date of event.

  34. If a company wants to convert its previous Unsecured Loan into Equity as per new Act, What Procedure we should Follow? do the company need to Follow Rule 13(2) of Share Capital & Debentures Rule, 2014?

    1. Rule 13(2) of Share Capital & Debentures Rule, 2014 will have to be followed at the time of entering into such agreement as EGM approval will be required only at the initial stage. Conversion into equity will be dependent on the earlier agreed terms and conditions.

    1. If you can accommodate the private placement offer letter to include details of multiple series of debentures, there should be no problem in filing only one offer letter. Further, please note that as per Section 42(3) of Companies Act, 2013 and Explanation ii of Rule 14(2)(b) of Companies (Prospectus and Allotment of Securities) Rules, 2014 no fresh offer can be made unless previous offers are completed. To my understanding the provisions of Companies Act do not prohibit such multiple offers through a single document. But the authorities might raise some queries if they fail to appreciate your compliance.

  35. sir, if it has been more than 60 days that money has been received from outside india but the allotment has not been made, what is the time limit? and what proceedure it should follow to allot securities? and please also specify when the offer letter should be sent i.e. after passing of board resoultion or special resolution? please help sir..

  36. sir, if the money has been received for more than 60 days from outside india but the securities has not been alloted, but the company wants to allot securities, then what it should do? and what is the time limit in this case? and please also sepcify during which period the offer letter must be sent i.e. after passing of board resoultion or special resoultion? please help

  37. Sir, Sec 42 does not provide any offer period to be mentioned in offer letter. If company received share application on different date ,can it make an allotment of share on different date referring to the restriction of 60 days from the date of receipt, 12 months from the date of passing special resolution and limit to offered shares?

    1. What is stipulated is that allotment has to be be made within 60 days of receipt of share application amount. 60 days time period starts from the day the application money is received by the company. Therefore, allotment can be made on a different date than the date on which application money is received. provided it is within the 60 day time interval.

  38. Dear Sir

    It was mentioned that the special resolution passed at the EGM will be valid for 12 months. I wanted to know that whether the validity of 12 months is only for the resolution of for the offer letter for which the resolution was passed. Looking forward for a early reply.

  39. Sir,
    Can the necessity of private placement be done away with, in case a separate class of shares is proposed to be allotted on a preferential basis
    In case of a company with 2 shareholders, can new class of shares be allotted to a whole new person while avoiding private placement

    1. Private placement process can be ignored only in case of rights issue and ESOP issue. Allotment of separate class of shares has to be done keeping in mind the provisions of S 42 of CA, 2013.

      In reply to your 2nd query, allotment of shares to a whole new person comes under the purview of Section 62(1)(c) of CA, 2013. And this section has to be read with section 42.

      Therefore, for both the above cases, private placement process has to be followed.

  40. Sir, If company passed Special resolution in AGM for issuing 12,00,000 shares but after 15 days of AGM Company allotted only 4,00,000. Now Company want to allot remaining 8,00,000 share then it is possible.?

  41. IN CASE OF PRIVATE PLACEMENT ALLOTMENT IS DONE BUT LETTER OF OFFER IS NOT GIVEN TO APPLICANTS, WHAT WE CAN DO NOW???

    1. Firstly, Form GNL-2 is required to be filed with PAS-4 as an attachment to give effect to the private placement. However, if offer letter is not given then the company shall be liable to a penalty of Rs. 2 crores or the amount involved in the offer, whichever is higher and the application money must be refunded within 30 days of the order imposing penalty.

  42. Sir,

    Please provide me the details whether the private placement of shares be made exclusively to Promoter & Promoter Co’s. Further to what extent the target co. can issue warrant so that the open offer will not attract.

    Regards,

    Satyendra

    1. Yes, private placement of shares can be made exclusively to Promoter & Promoter Co’s. To what extent so that open offer is not triggered depends on their existing level of holding. If they hold below 25%, they can issue shares upto 25%. If the Promoters holding is between 25 to 75% bracket, the company may issue them further shares upto 75% subject to a max of 5% per annum.

      bsamrish

  43. can a PAS 5 revised or otherwise a company allot shares less than PAS-5 (means record maintain under PAS-5)

  44. If a company has not filed the return of allotment PAS-3 within 30 days of allotment then what can a company can do for filing form. Is it required to form any other form with penalty?

  45. In case of private placement how long should the offer period be kept open as the section does not provide any information regarding the period of offer.

    1. You are right, there is no time period mentioned. You may keep the offer letter open for any period provided it fits into other timelines prescribed in the Act, eg. the Shareholders Resolution is valid for 12 months, etc.
      .
      bsamrish

  46. Besides, Companies Acceptance of Deposit Rules also states that if Share Application Money is kept beyond 60 days, it shall be treated as Deposits. And this provision is applicable to all cases and not just Private Placement.

  47. Dear Sanjeev,
    .
    You are right, if shares are being issued to existing shareholders in proportion to their existing holding, it shall be a rights issue (62(1)(a) of CA 2013). However, if one / few and not all of the promoters is/are being issued shares, then it shall not be a rights issue unless it is a case of some shareholders renouncing their rights in favour of others. It may be open to scrutiny whether it is a case of bonafide renounciation.
    .
    Rule 13(1) of Companies (Share Capital and Debentures) Rules, 2014 also states that Preferential issue of shares may be made u/s 62(1)(c) of the Act to any person whether or not such persons include existing shareholders or not and then such Preferential Issue has to comply with Section 42 (60 days, separate Bank Account, etc) of the Act. In Explanation to aforesaid Rule 13(1), Preferential Offer has been defined and it does not includes Rights Issue.
    .
    bsamrish

  48. Preferential issue of shares procedure shall be followed when you have a new shareholder introduced. If the Company wants to issue shares to its existing shareholders or shareholder without diluting shares substantially then it is better to go through right issue u/s 62 of the CA, 2013. Sec 62 does not ask to park the money in separate Bank account, time limit of 60 days to allot the shares and valuation from the registered valuer. So, I wish not to follow sec 42 when a Company wants to issue shares to promoters.

    1. If the company has taken unsecured loan before commencement of Companies Act, 2013 and has not passed any special resolution for conversion of loan into equity, and now at present date company wants to convert the loan into equity, what will be the procedure for this?
      Please reply.

      1. In order to go for private placement on the current date with respect to conversion of loan, it is necessary that a special resolution should have been passed at the time of giving of loan without which such loan amount cannot be converted into equity. Also the terms and conditions of the loan should specify that such amount was capable of being converted into equity at a later stage.

        1. If, company issue offer letter (PAS-4) of Rs. 20 Cr. AND OFFER OPEN ON 1st March 2017 AND OFFER CLOSED ON 30TH APRIL, 2017
          if fund received of Rs. 5 Cr. on 30th march,2017 and Rs. 10 cr. on 10th April, 2017 and reaming 5 cr. on 20 th april, 2017.
          is It possible to held BM on 1st april,2017 for allotment of first 5 cr. and utilized the same and 11th april, 2017 for further 10 cr. and 21st april, 2017 for further 5. cr.?

          1. As per Sec.42(6) of CA 2013, Co. shall allot its securities within sixty days from the date of receipt of the application money for such securities. So, If Company wants to utilize money as and when it arrives then it may hold separate Board meetings for allotment of securities within 60 days’ time from receipt of such money and utilize the same.

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