ALL YOU NEED TO KNOW ABOUT PRIVATE PLACEMENT AND FAQS ON PRIVATE PLACEMENT

PRIVATE PLACEMENT (PP) UNDER COMPANIES ACT, 2013

 

Introduction:

 

We all know Companies Act, 2013 provides various options to issue Securities (Shares, Debentures or any other type of Securities). One of these options is Private Placement. The definition of Private Placement explains when the Companies have to follow the provisions. Let’s look into the Definition and the Provisions.

 

List of Sections:

 

Before go to the Provisions of Private Placement, it is apt to make the list of Sections and Rules which are applicable while issuing securities under Private Placement. Below is the list:

 

·       Section 42 of the Companies Act, 2013

·       Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014

 

Definition:

 

Explanation -I to Section 42(3) defines the Private Placement;

 

"Private Placement" means any offer or invitation to subscribe or issue of securities to a 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.

 

Let us split the definition and make it easy to understand

 

Private Placement is:

 

-      any offer or invitation by a company

-      to subscribe or issue of securities

-      to a select group of persons,

-      other than by way of public offer,

-      which satisfies the conditions specified in Sec 42

 

Provisions:

 

Now we understood what is the definition, but what are the provisions to be followed while issuing securities under Private placement (PP)?

 

The list is made in Q&A format for better understanding:

 

i.            To whom securities can be issued under PP??

 

The securities under PP can be issued /offered only to a select group of persons who have been identified by the Board.  

 

ii.          Private Placement offer can be given to how may persons? 

 

The offer of securities or invitation to subscribe securities, shall be made to not more than 50 persons in a single offer or not more than 200 persons in the aggregate in a financial year (excluding qualified institutional buyers and employees of the company being offered securities under ESOP). This restriction would be read for all the securities combined together in a Financial Year.

 

iii.       What kind of Approval/Resolution to be passed for offer under Private Placement?

 

Each Private Placement offer should be previously approved by the shareholders of the company, by a Special Resolution.

 

In case of offer or invitation for non-convertible debentures, it shall be sufficient if the company passes the Board Resolution each time if such issue is within the borrowing limit specified under Section 180(1)(c) of the Companies Act. However, borrowing limits are to be approved by the shareholders of the issuer company first.

 

For Private Companies issuing NCDs no need of Shareholder Resolution as there is an exemption granted for Section 180. 

 

iv.        Is there any prescribed format for Offer Letter?

 

The PP offer letter shall be in form of PAS-4 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 name of such person.

 

A company shall issue private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed in form MGT-14 to the ROC. 

 

v.          Is there any minimum Offer size per person?

 

Earlier there was a requirement of minimum offer size of Rs. 20,000 face value of the Security. However the same was dispensed off by Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2018 with effect from 7th August, 2018. So there is no minimum offer size for Private Placement.

 

vi.        Whether Separate Bank Account in scheduled Bank to be opened for each offer?

 

There is always confusion regarding this question from the beginning of Commencement of Section 42.

 

The provision reads as “the monies received on application under this section shall be kept in a separate bank account in a scheduled bank”.

 

However in a recent Adjudication Order, ROC, Bangalore has imposed adjudication penalty for not opening a Separate Bank Account. Hence it is prudent to open a Separate Bank Account.

 

vii.      When to make the payment for subscription?

 

Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money.

 

viii.    Whether the person to whom the offer has been made can renounce the offer to other person?

 

The proviso to sub-section 3 of Section 42 explicitly provides that the private placement offer and application shall not carry any right of renunciation.

 

The person to whom the offer is made can either accept or reject the offer. There is no right for renunciation. 

 

ix.        What are the acceptable payment modes?

 

The subscription money shall be paid either by cheque or demand draft or other banking channel or not by cash.

 

x.          Whether application money can be utilized by the Company before allotting the securities??

 

No. the Application money received shall not be utilised for any purpose other than:

 

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

 

xi.        Within how many days the Allotment of Securities to be completed?

 

Issuer Company shall allot its securities within 60 days from the date of receipt of the application money; and

 

if the Company is not able to allot the securities within that period, it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days; and

 

if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of 12% per annum from the expiry of the sixtieth day.

 

xii.      Is there any record of Private Placement to be maintained?

 

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

 

xiii.    When to file Return of Allotment for Private Placement of Shares / Securities?

 

A return of allotment of securities shall be filed with the Registrar within 15 days of allotment in Form PAS-3 along with a complete list of all the allottees.

 

The amount should not be utilised before filing Form PAS-3 (Return of Allotment)

 

xiv.     Whether the Company can make fresh offer under PP when one PP offer is pending?

 

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

 

xv.       What are the consequenses of non-compliane?

 

Any private placement issue not made in compliance of the provisions of section 42 shall be deemed to be a public offer and all the provisions of this Act and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act and Regulations will apply.

 

Contravention of Section 42 attracts penalty which may extend to the amount involved in the offer or invitation or Rs. 2 Crore whichever is lower, and the company shall also refund all monies to subscribers within a period of 30 days of the order imposing the penalty.

 

If a company defaults in filing the return of allotment within15 days, the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees

 

 

STEP BY STEP PROCEDURE FOR PRIVATE PLACEMENT

 

 

1.     Hold Board Meeting	2.     Hold General Meeting	3.     File form MGT-14
•        To approve the list of identified persons •         To approve the draft offer letter •         To call GM	•        To pass special resolution approving PP and approving offer letter	•        File the Special Resolution in Form MGT-14 within 30 days from the date of EGM
4.     Circulate the Offer Letter (PAS-4)	5.     Receive the Application money	6.     Allotment
•        PAS-4 to be circulated to the identified persons. •        It can be circulated only after filing MGT-14	•        The Application money to be received and kept in a Separate Bank Account	•        Allotment to be done within 60 days from the date of receipt of Application Money
7.     File Return of Allotment	8.     Utilization of amount	9.     Other incidental matters
•        The Return of Allotment in Form PAS-3 to be filed within 15 days from the date of allotment	•        The amount can be utilised only after filing PAS-3	•        Issue of Share Certificates within 2 months fromt he date of allotment •        Updating the Register of Members

 

 

 

For more details you can contact us

 

email: dcsadvisors@gmail.com

Mobile: 9019421726

 

 

Author:

 

TEAM DCS ADVISORS LLP

 

Disclaimer:

The Views expressed are solely of the Author and the contents of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.

 

 

STEP BY STEP PROCEDURE FOR CHANGE OF NAME OF A PRIVATE LIMITED COMPANY

STEP BY STEP PROCESS FOR CHANGE OF NAME OF A PRIVATE LIMITED COMPANY:

 

Changing name of the Company is a crucial change. It involves alteration of Memorandum of Association and Articles of Association.

 

Applicable Provisions:

 

-        Section 13 of the Companies Act 2013

-        Rule 29 of Companies (Incorporation) Rules, 2014

 

Type of Shareholder Resolution required to be passed: 

 

-        special resolution.

 

Forms to be filed:

 

a.      RUN (Web based)

b.      MGT-14

c.      INC-24

 

THE STEP-BY-STEP PROCESS IS OUTLINED BELOW:

 

I.                 PASSING BOARD RESOLUTION

 

A board meeting shall be called for authorising any Director to make the application before CRC for name.

 

II.               CHECKING NAME AVAILABILITY / APPLICATION FOR NAME APPROVAL:

 

The authorized director has to apply / assign professional to make application before CRC in web based form “RUN” for approval of proposed name.

 

Once the name is approved by CRC it will be valid for 60 days. Within 60 days, Company needs to complete all other process.

 

III.            CALLING GENERAL MEETING AND PASSING SPECIAL RESOLUTION

 

One more Board Meeting to be called to transact following agenda:

 

1.      To take note of approved name

2.      To call for an general meeting.

 

In the General Meeting, a special resolution need to be passed for changing name and make the change in Memorandum of Association and Articles of Association.

 

IV.             APPLICATION BEFORE REGISTRAR FOR CHANGE OF NAME

 

Within 30 days of passing the resolution, following forms have to be filed before ROC along with the attachments:

 

1.      Form MGT-14:

a.      Notice of General Meeting with explanatory Statement

b.      Altered MOA with foot note

c.      Altered AOA with foot note

d.      Consent for Shorter Notice (If required)

e.      Declaration from Directors for non acceptance of Deposits, Filing of Annual Returns and for Compliances

f.       Extract of EGM Resolution

 

2.      Form INC-24:

a.      Altered MOA with foot note

b.      Altered AOA with foot note

c.      Minutes of General Meeting

d.      Declaration from Directors for non acceptance of Deposits, Filing of Annual Returns and for Compliances

e.      SRN of MGT-14

 

 

V.               ISSUANCE OF CERTIFICATE OF INCORPORATION by ROC:

 

If the Registrar of Companies is satisfied with the documents, he/she will issue a new certificate of incorporation.

 

As per section 12 of Companies act 2013, up to 2 years, the company has to use the old name in addition to new name in all official publication.

 

VI.             APPLICATION FOR MODIFICATION OF NAME IN ALL OTHER REGISTRATIONS:

 

Once the Fresh Certificate is issued by ROC application for alteration of name in all other statutory registrations to be filed (e.g., PAN, TAN etc.,)

 

For more details you can contact us

 

email: dcsadvisors@gmail.com

Mobile: 9019421726

 

 

Author:

 

TEAM DCS ADVISORS LLP

 

Disclaimer:

The Views expressed are solely of the Author and the contents of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.

 

MOA MAIN OBJECTIVES FOR COLD STORAGE

1.      To carry on the business of all kinds of cold storage and refrigeration including the business of manufacturers and dealers in all kinds of ice making refrigeration and cold storage, apparatus, machineries, equipments, systems used in connection with the same and to carry on the business of manufacturers of and dealers in all kinds of ice including dry ice, liquid carbon dioxide, ice cream and all kinds of frozen victuals including frozen fruits and vegetables and aerated and mineral waters.

 

2.      To carry on the business of producing, growing, dealing, exporting, importing, stocking, trading, distributing, storing and preserving in cold storage fresh vegetables, agricultural and milk & dairy products, fruits, dry fruits, oil seeds, spices, fruit juices, seeds, fish, meat, and such other perishable items of all types; ice candy, ice cream and other ice products, carbonated, aerated mineral water, wines, liquors and other alcoholic and synthetic drinks in cold storage.

 

3.      To carry on the business in India and elsewhere to construct, build, establish, run, erect, promote, undertake, acquire, lease, sale, purchase, own, operate, manage, renovate, recondition, maintain, keep and to run multipurpose cold storage, storage chambers, ice chambers, go-downs, warehouse, refrigeration houses and freezing houses for storing, warehousing, keeping, preserving of all kinds of fruits and vegetables, including onion, milk, milk products, sweets, processed food, protein food, food products, bakery products, bacons, soft drinks, medicines, chemicals, cereals, gur, or other substances, whether kept loose, packed, tinned, canned or in any other form whatsoever.

 

4.      To carry on the business of manufacturers, designers, importers, suppliers, repairers, assemblers, traders, marketers, agents for, dealers in and hirers and renters of all kind of Refrigerators and compressors, refrigeration and cold storage equipment,  refrigeration machinery of all kinds, and all kinds of freezers and beverage coolers.

MOA MAIN OBJECTIVES FOR COMPUTER HARDWARE BUSINESS

1.      To carry on the business of dealing and maintenance of computer hardware, computer systems and assemble data processors, program designs and to buy, sell or otherwise deal in such hardware and software packages and all types of tabulating machine, accounting machines, calculators, computerized telecommunication systems and network, their components, spare parts, equipments and devices and to carry on the business of establishing, running and managing institutions, school, and academics for imparting education in computer technology, offering equipment, solutions and services for networking and network management, data centre management and in providing consultancy services in all above mentioned areas.

 

2.      To carry on in India or elsewhere the business to manufacture, design, develop, formulate, buy, sell, import, export or otherwise to deal in computers and a wide variety of other electronic products, personal computers, storage devices, and computer peripherals, audio and video equipment, semiconductors and other electronics components, and wired and wireless communications devices.

MOA MAIN OBJECTIVES FOR COURIER SERVICES

1.      To provide, develop, establish, run, manage, charter, contract, own and operate couriers services, collecting and delivering any document, goods, articles or things on behalf of customers through all its branches in India or abroad and to do business as fleet carriers, transporters, for transporting goods and providing services related thereto all over India and outside India and to act as agents concessionaires, franchisers, booking agents for all types of courier activities.

 

2.      To carry on the business for the carriage and delivery of commercial or personal papers, business documents, documents for banking and shipping invoices, reports, engineering plants, blue prints, parcels, inter-office correspondence, etc.,  machine parts & accessories, electronic items including computers and computers peripherals, accessories, and parts thereof among other things throughout the world.

 

3.      To act as a general carriers forwarding agents, courier and cargo handlers and contractor,  ware housemen, bonded warehousemen, customs agents, landing agents and carriers multinational services, air, rail, road and sea any part of the world hander services as commission agents, consultants for carriers forwarding agents.

ALL YOU NEED TO KNOW ABOUT PREFERENCE SHARES

PREFERENCE SHARES

 

Meaning of Preference Shares:

 

Preference Shares are not defined in the Definition part of the Companies Act, 2013. However, it has been defined in Section 43 of the Companies Act, 2013 as below:

 

Explanation (ii) to section 43 of the Companies Act, 2013 (‘the Act’) defines the term Preference Shares.

 

"Preference Share Capital", with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to—

 

(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and

(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company.

 

·            Further, as per Explanation (iii) to section 43, when a certain class of shares has either of the following features, the same shall be deemed to be preference shares.

 

a) in addition to the preferential right to receive dividend, the shareholders have a right to participate either fully or to a limited extent in the capital not having preferential treatment
b) in addition to the preferential repayment of share capital in the event of winding up, the shareholders are entitled to participate either fully or to a limited extent in the surplus capital of the company available

 

Kinds of Preference shares:

 

·        There are Seven kinds of preference shares:

 

i.                 Redeemable Preference Shares:

 

Redeemable preference shares are those shares which are redeemed or repaid after the expiry of a stipulated period.

 

ii.               Cumulative Preference Shares

 

Preference dividend is payable if the company earns adequate profit. However, cumulative preference shares carry additional features which allow the preference shareholders to claim unpaid dividends of the years in which dividend could not be paid due to insufficient profit.

 

iii.            Non-cumulative Preference Shares

 

The holders of non-cumulative preference shares will get preference dividend if the company earns sufficient profit but they do not have the right to claim unpaid dividend which could not be paid due to insufficient profit.

 

iv.             Participating Preference Shares

 

Participating preference shareholders are entitled to share the surplus profit of the company in addition to preference dividend.

 

v.               Non-participating Preference Shares

 

Non-participating preference shareholders are not entitled to share surplus profit and surplus assets like participating preference shareholders.

 

vi.             Convertible Preference Shares

 

The holders of convertible preference shares are given an option to convert whole or part of their holding into equity shares after a specific period of time.

 

vii.           Non-convertible Preference Shares

 

The holders of non-convertible preference shares do not have the option to convert their holding into equity shares i.e. they remain as preference share till their redemption.

 

Tenure of Preference shares:

 

(i)             A Company Limited by Shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue.

(ii)           A company may issue preference shares for a period exceeding twenty years but up to thirty years for infrastructure projects, subject to the redemption of 10% of shares on an annual basis at the option of such preferential shareholders from 21st year onwards or earlier.

 

Methods of Issue of Preference Shares:

 

·                           Rights Issue under Section 62(1)(a) only to the existing Equity Shareholders; or

·                           ESOP Under Section 62(1)(b) specifically to the employees under a Scheme or

·                           Preferential Allotment under Section 62(1)(c) of the Companies Act, 2013 to any person subject to the adherence to Rule  13 of Companies (Share Capital and Debenture) Rule, 2014;

·                           Private Placement of Shares under section Section-42 read with the Rules made thereunder;

 

Conditions for issue of preference shares

 

Section 55 of the Act read with Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014 made there under, requires a Company to meet with following conditions:

 

·                           Company’s Articles should contain such clause allowing issue of Preference Shares

·                           Company’s Memorandum Should have the Preference Shares as a part of Authorised Capital

·                           The Company, at the time of such issue of Preference Shares, has no subsisting default in the redemption of Preference Shares issued either before or after the commencement of this Act or in payment of dividend due on any Preference Shares

·                           Obtain the prior approval of the Shareholders, by way of a Special Resolution

·                           Valuation Report to be taken to arrive at issue price 

 

Information to be given to the Shareholders in Explanatory Statement

 

·                           The size of the issue and number of preference shares to be issued and the nominal value of each share

·                           The nature of such shares i.e. cumulative or non-cumulative, participating or non-participating, convertible or non-convertible

·                           The objectives of the issue

·                           The manner of the issue of shares

·                           The price at which such shares are proposed to be issued

·                           The basis on which the price has been arrived at

·                           The terms of issue, including terms and rate of dividend on each share, etc.

·                           The terms of redemption, including the tenure of redemption, redemption of shares at the premium and if the preference shares are convertible, the terms of conversion

·                           The manner and modes of redemption

·                           The current shareholding pattern of the company

·                           The expected dilution in equity share capital upon conversion of preference shares

 

Particulars to be set out in the Resolution to be passed to issue Preference Shares

 

·                           The priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares

·                           The participation in surplus fund

·                           The participation in surplus assets and profits, on winding-up which may remain after the entire capital has been repaid

·                           The payment of dividend on cumulative or non-cumulative basis

·                           The conversion of preference shares into equity shares

·                           The voting rights

·                           The redemption of preference shares

 

Redemption of preference shares

 

Meaning:

 

It is a process of repaying an obligation, usually at the prearranged amount. These shares are issued to the shareholders on terms that holders will at some future date be repaid the amount which they invested in the company.

 

The redemption date is the maturity date, which specifies when repayment takes place and is usually be mentioned in the agreement.

 

Conditions for Redemption:

 

·                           Fully paid-up preference shares can only be redeemed.

·                           Preference shares can be redeemed only out of the profits available for distribution to its shareholders or out of proceeds of fresh issue of Shares solely for the purpose of funding the redemption of the preference shares

·                           Where the redeemable preference shares are redeemed out of the profits available for distribution, a sum equivalent to the nominal amount of shares being redeemed shall be transferred to the Capital Redemption Reserve. The CRR shall be treated as the paid-up share capital of the company for all purposes and can also be utilized for bonus issue of shares

·                           In case of such class of companies as may be prescribed  under Sec 133 of the Companies Act, 2013 and whose financial statements comply with the accounting standards.

 

(i)                     Premium payable on redemption shall be provided out of the profits of the company before the shares are redeemed.

 

(ii)           Premium payable on redemption of any preference shares issued on or before the commencement of 2013 Act, shall be provided out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed.

·                  In a case not falling under the class of Companies as mentioned above, the premium, if any, payable on redemption shall be provided for out of the profits of the company or out of the company's securities premium account, before such shares are redeemed.

 

Inability to redeem the redeemable Preference Shares

 

·                           Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed:

 

·                           The Tribunal shall order the company to immediately redeem the preference shares held by the shareholders dissenting to such arrangement.

 

·                           The issue of preference shares for purpose of redemption of unredeemed preference shares (along with the dividend) shall not be considered as an increase in the share capital of the company

 

For more details you can contact us

 

email: dcsadvisors@gmail.com

Mobile: 9019421726

 

 

Author:

 

TEAM DCS ADVISORS LLP

 

Disclaimer:

The Views expressed are solely of the Author and the contents of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.