FAQs on Private Placement Under Companies Act, 2013 [CS Hera Siddiqui]



WHAT DO YOU MEAN BY PRIVATE PLACEMENT?

 A “private placement” is a private alternative to issuing, or selling, a publicly offered security as a means for raising capital. In a private placement, both the offering and sale of debt or equity securities is made between a business, or issuer, and a select number of investors.

HOW DO PRIVATE PLACEMENTS WORK?

A private placement is when company equity is bought and sold to a limited group of investors. That equity can be sold as stocks, bonds or other securities. Private placement is also referred to as an unregistered offering. A private placement might take place when a company needs to raise money from investors.

ADVANTAGES OF USING PRIVATE PLACEMENTS

Allow you to choose your own investors - this increases the chances of having investors with similar objectives to you and means they may be able to provide business advice and assistance, as well as funding.

IS PRIVATE PLACEMENT SAME AS PRIVATE EQUITY?

Whereas private placement involves selling shares to an exclusive, closed group of investors, private equity is an alternative investment form which does not rely on capital listed in public exchanges.

IS PRIVATE PLACEMENT GOOD FOR COMPANY?

Private placement is a common method of raising business capital by offering equity shares. ... However, stockholders may see long-term gains if the company can effectively invest the extra capital obtained and ultimately increase its revenues and profitability.

IS RIGHTS ISSUE A PRIVATE PLACEMENT?

In a public company, a rights issue is a form of public offering (different from most other types of public offering, where shares are issued to the general public).

HOW TO COMPLETE A PRIVATE PLACEMENT

  1. Deal Launch. The first step, Deal Launch, initiates the window of time from which the issue is offered to investors, to when a decision must be made, typically 1-3 weeks.

  2. Negotiations.

  3. Information Gathering.

  4. Investment Risk Analysis.

  5. Pricing.

  6. Rate Lock.

  7. Closing

HOW LONG DOES A PRIVATE PLACEMENT TAKE?

The timeline for completing a private placement will vary based on the size and credit profile of each issuer as well as the specific private placement lender, however, it generally takes 6-8 weeks to complete the first transaction.

CAN PUBLIC COMPANY DO PRIVATE PLACEMENT?

Public Companies. Further if an Unlisted Public Companies Issue Securities by way of “Private Placement” or “Right Issue” or “Bonus Issue” then it has to Comply with the applicable Provisions of Companies Act, 2013 and related Rules/

IS VALUATION REQUIRED FOR PRIVATE PLACEMENT?

It is mandatory to obtain report of Registered Valuer for allotment of shares as Private Placement. Income Tax Act: As per Income Tax Act until unless shares are issued on premium there is no need of valuation certificate.

IS THERE ANY OFFER PERIOD FOR PRIVATE PLACEMENT?

Offer shall be open for a minimum of 15 days and a maximum of 30 days from the date of offer. However, in private companies the offer period can be less than 15 days with the consent of 90% of shareholders.

WHAT ARE PRIVATE PLACEMENT WARRANTS?

Private Placement Warrants means the warrants being purchased privately by the Sponsor simultaneously with the consummation of the Company's initial public offering (including to a certain extent in connection with the consummation of the Underwriters' over-allotment option related thereto).

WHO IS NOT ELIGIBLE FOR SHARES UNDER PRIVATE PLACEMENT?

Further, unlike a public offer where shares are offered to public at large, a private placement can be made to a maximum of 200 people (and not mare than 50 people per offer) in a financial year. This number excludes qualified institutional buyers such as banks, financial institutions etc.

WHAT IS THE VALIDITY OF PRIVATE PLACEMENT OFFER LETTER?

The offer letter can be manually written or can be printed. The letter should be sent within the thirty days of recording the names. Offer can be made only through prior approval in Special Resolution. The validity of the Resolution is 12 months.

WHAT IS A PRIVATE PLACEMENT OFFER LETTER?

A Private Placement Offer Letter is the document that a Company issues while making a Private Placement Offer to a specified group of persons. Furthermore, when a Company raises capital through Private Placement, it needs to issue this document in Form PAS-4 and circulate it among the identified persons.

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