Private Placement

Private Placement refers to the process by which a company issues securities such as shares or debentures to a select group of individuals or institutions, rather than offering them to the general public. This method allows companies to raise capital privately without going through the lengthy and expensive procedures associated with a public issue. Private placement is strictly regulated to ensure transparency and prevent misuse.

Governing Law Private Placement is governed by Section 42 of the Companies Act, 2013, along with relevant rules such as the Companies (Prospectus and Allotment of Securities) Rules, 2014. This section lays down specific conditions, limits, procedures, and compliance requirements that companies must follow.

Key Features of Private Placement:

1. Select Group of Investors Securities are offered to a pre-identified group of persons, known as “identified persons”, not exceeding 200 individuals in a financial year (excluding QIBs and employees under ESOP).

2. No Public Offer The offer is not open to the general public and cannot be advertised: No public marketing No media announcements No distribution of application forms to the public.

3. Offer Letter Requirement The company must issue a Private Placement Offer-cum-Application Letter (Form PAS-4) to the identified persons only.

4. Separate Bank Account Money received from investors must be: Only through banking channels (no cash), and Deposited into a separate bank account in a scheduled bank.

5. Allotment within 60 Days Securities must be allotted within 60 days of receiving application money; otherwise, the money must be refunded with interest.

6. Filing with ROC The company must file Return of Allotment (Form PAS-3) with the Registrar of Companies. 

Advantages of Private Placement Faster and simpler than a public issue Lower compliance and cost burden Attracts strategic or institutional investors Maintains confidentiality of fundraising details.Reduces regulatory complexity Ensures investor protection through defined rules Prevents misuse of private offers as disguised public issues