Section 80G Registration
Empowering you with impactful support and tax exemptions for 80G Registration
Streamline your capital raising process with our specialized private placement of shares service, tailored for a select group of institutional investors, private equity firms and high net worth individuals.
Custom Pricing Awaits!
Overview
In accordance with the Companies Act of 2013, “private placement of shares” is the term used to describe the practise of distributing shares to a limited number of persons or companies as part of a private transaction rather than conducting a public sale of those shares. Private placement of securities can be made only to select persons or identified persons (as identified by the board of the company). A company making a private placement cannot offer its securities through any public advertisements or utilise any marketing, media, or distribution agents or channels to inform the public about such an offer. If the offer is advertised or marketed, it will be considered a public offer and not a private placement by the company.
Important Characteristics of Private Placement of share
- Section 42 of the Companies Act 2013 Governing Provisions: Private placement of shares is governed by Section 42 of the Companies Act 2013. It involves offering or inviting a select group of individuals to subscribe to securities (shares or other securities convertible into shares) through a private placement offer letter.
- Conditions for Private Placement: A private placement can only be offered to certain groups of investors, such as qualified institutional purchasers, bodies corporate, workers’ trust, or employees’ welfare trust. Other types of investors are not eligible to participate in private placements. The Act also details specific requirements that must be met before an offer may be made, including the number of people to whom it can be made, the minimum amount that must be offered to each individual, and other relevant restrictions.
- Letter of Offer: The company that is engaging in private placement is required to prepare a private placement offer letter that contains all of the necessary details of the offer. These details must include the number of shares that will be issued, the price, the terms and conditions, the reasons for the offer, and any other information that is pertinent.
- Allotment of Shares: Once the company has received the applications from the potential investors, the board of directors of the company must provide their approval before the allotment of shares may take place.
- Minimum Subscription: The Act stipulates that the amount of money that must be paid by an investor in order to acquire the shares that they have requested cannot be lower than the minimum subscription amount that has been established by the company. In the event that the required number of subscriptions are not obtained, the money that was collected from the applicants need to be returned to them within fifteen days of the subscription being terminated.
- Compliance and Reporting: Companies that engage in private placement are obliged to comply with a variety of rules, including as keeping records of private placement offers, submitting appropriate forms with the RoC, and making essential disclosures to the shareholders and regulatory authorities. Additionally, it is necessary for them to guarantee compliance with the limits placed on the transferability of securities that were acquired through private placement.
- Fines for Non-Compliance: If the company and its officials are found to have violated the conditions that are associated with private placement, they may be subject to fines. For violations of the Act, which include failing to comply with the mandated conditions, the Act outlines specific consequences, including monetary fines and possible jail time.
Process
- Business’s Eligibility for Private Placement: Ensure the business meets the eligibility requirements for private placement as per Section 42 of the Companies Act 2013. This involves identifying the different types of shareholders to whom the shares may be offered.
- Obtain the Approval of the Board of Directors: The board of directors should vote in favour of a resolution that gives their blessing to the private placement of shares. The resolution should explain the total number of shares that are going to be offered, in addition to the price, terms, and conditions of the offer, as well as any other pertinent information.
- Private Placement Offer Letter: Create an offer letter for private placement that includes all of the information that is required to be included in the offer. It is important that the offer letter contain information about the Company, the reason for the private placement, the number of shares that will be issued, the price, the conditions of payment, and any limitations that may apply to the transferability of the shares. 4. Send a copy of the offer letter to each potential investor. The letter should clearly state the time limit for accepting the offer and subscribing to the shares.
- Receive Applications and Approve the Allotment: After the company’s board of directors has received the applications submitted by the potential investors, they will need to provide their approval for the allotment of shares. The terms that were outlined in the offer letter are used to determine how the investors would be distributed their shareholdings.
- Keep Records: Be sure you keep accurate records of the applications you receive, the private placement offers, and the shares that are issued. These documents ought to be stored in the company’s registered office, where they should also be made available for inspection on an as-needed basis.
- Compliance with Private Placement Regulations: Ensure adherence to various regulations governing private placements, including timely submission of relevant paperwork and disclosures to the Registrar of Companies (RoC). This includes filings such as the return of allotment and any necessary filings for subsequent changes in share capital.
- Payment on Time and the Issuance of Share Certificates: Collect the payments from the investors in accordance with the conditions outlined in the offer letter, and then issue the share certificates. After all of the funds have been received, the share certificates should either be issued or the appropriate entries should be made in the electronic member register
Benefits
- Infusion of funds: A private placement enables businesses to obtain funds from a limited number of investors without having to contend with the complications and regulatory obligations that are associated with a public offering of the company’s securities. It makes it possible for businesses to swiftly and effectively access financing.
- Control and Limited Dilution: Companies are able to keep control while also limiting the amount of ownership that is lost as a result of offering shares to a limited number of investors. It makes it possible for current shareholders, such as the company’s promoters or significant stakeholders, to keep their ownership in the company as well as their influence over its operations.
- Flexible Structuring: The structuring of the terms and circumstances of the share issue may be done with a greater degree of freedom when using private placement. Companies have the ability to negotiate the pricing, payment periods, and other conditions with the investors, which enables the companies to adjust the offering to specific requirements and the conditions of the market.
- Anonymity and Privacy: When opposed to a public offering, a private placement provides a greater degree of anonymity and privacy to its participants. It is possible to maintain the confidentiality of the information on the offering and the investor base, therefore preserving sensitive corporate information.
- Investors: Who Fit the Company’s strategy Objectives, Industry Expertise, or Long-Term Vision Companies have the ability to carefully approach investors who fit the company’s strategy objectives, industry expertise, or long-term vision. This makes it possible for businesses to entice investors who can contribute more than simply financial resources, such as industry expertise, business networks, or synergies across businesses.
- Cost-Effectiveness and Time-Efficiency: When compared to a public offering, a private placement is typically both a cost-effective and time-efficient means of obtaining money. Less stringent regulatory standards, less duties to disclose sensitive information, and decreased administrative costs are all part of this process.
- Price Variability: Private placement allows businesses to negotiate the price of the offering with investors, providing flexibility to raise capital at a price that reflects the company’s share value or the specific investment opportunity.
- Reduced influence of Market Volatility: The influence of market volatility on the share price is reduced as a result of private placement. Because the shares are only being made available to a limited number of investors, the pricing is less sensitive to developments in the broader market.
- Easier Regulatory Compliance: The provisions of the Companies Act 2013 pertaining to private placement serve to provide a regulatory structure for the issue of shares. When opposed to a public offering, which involves additional regulatory obligations and public disclosures, it makes the process easier to comply with the law and minimises the burden of compliance.
- Investor Confidence: Private placement can enhance credibility and investor confidence in a company, especially when offered to institutional or skilled investors. The involvement of reputable investors signals trustworthiness and stability to other stakeholders and potential investors.
Compliances
- Board Approval: In order to proceed with the private placement of shares, the board of directors needs to provide its approval. The board resolution must first accept the terms and circumstances of the private placement before it can authorise the issuing of shares, as well as establish the total number of shares that will be distributed.
- Approval from Shareholders: If obtaining approval from shareholders by a special resolution in a general meeting is needed under the company’s Articles of Association or any other provision that may be applicable, then this approval must be obtained. It is imperative that the agenda item concerning the private placement be included in the notification of the general meeting.
- Private Placement Offer Letter: This letter should include all of the pertinent information regarding the offer. It is important that the offer letter contain information about the company, the reason for the private placement, the number of shares that will be issued, the price, the conditions of payment, and any limitations that may apply to the transferability of the shares.
- Utilisation of money: For the purpose that was outlined in the offer letter, all of the money that were raised through private placement should be used. The company is obligated to demonstrate that the funds have been utilised in compliance with the offer letter and any applicable rules, as well as to keep accurate records as required by the law.
- Keep Records: Be sure you keep accurate records of the applications you receive, the private placement offers, and the shares that are issued. These documents ought to be stored in the company’s registered office, where they should also be made available for inspection on an as-needed basis.
- Filings and Disclosures: In accordance with the requirements of the Companies Act 2013 and any other rules that may be relevant, ensure that all required filings and disclosures are made with the Registrar of Companies as well as any other regulatory authorities. This covers both the filing of the return of allotment and any later changes in share capital that may occur.
- Compliance with Other Applicable Laws: Ensure that you are in compliance with any and all other applicable laws, rules, and standards. Some examples of these are tax laws, restrictions regarding foreign exchange, and sector-specific requirements.
FAQs
The term “private placement” refers to an offer or invitation to subscribe to securities (shares or other securities convertible into shares) that is extended by a company to a limited number of individuals through the use of a private placement offer letter.
According to the Companies Act 2013, a private placement can be offered to specific groups of investors. These groups include qualified institutional purchasers, bodies corporate, workers’ trust, and employees’ welfare trust.
Obtaining board and shareholder approvals, preparing a private placement offer letter, filing the document with the Registrar of Companies (RoC), maintaining proper records, complying with SEBI regulations (if applicable), and making necessary filings and disclosures are all part of the private placement compliance requirements.
The answer is yes; a private placement can be offered to non-resident investors as long as it complies with the legislation concerning foreign exchange as well as any other laws that may be applicable.
No, the monies that were acquired through the private placement shall only be used for the purpose that was outlined in the offer letter for the private placement. It is necessary for businesses to keep records and be able to demonstrate the appropriate application of the cash.
If a business and its officials are found to be in violation of the requirements of the Companies Act 2013 pertaining to private placement, they may face penalties such as monetary fines and even time served in prison.
The answer is yes; shares that are distributed by private placement may be subject to certain restrictions on their capacity to be transferred. These restrictions will be outlined in the private placement offer letter and in any rules that are relevant.
The following documents are required to issue securities through private placement:
- Valuation report
- Private placement offers cum application letter
- Certified copy of board resolution approving the private placement offer.
- Notice of general meeting along with the explanatory statement of special resolution.
- Records of private placement offers in form PAS-5.
- Application form along with subscription money from all the proposed investors.
- List of allottees containing full name, address, PAN and e-mail ID, class of security, date of allotment and number of securities held, nominal value and amount paid on such securities.
