Private Placement – Section 42 of Companies Act 2013

Section 42 of the Companies Act, 2013 (‘Act’) provides that a company can make a private placement to a select
group of persons. Private placement by companies means offering its securities or inviting to subscribe its
securities for a select group of persons other than by way of a public issue through a private placement offer
letter.
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.
Private Placement Offer Letter
Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (‘Rules’) provides the
regulations relating to the private placement by companies. The Rules state that the company should offer or
invite to subscribe its securities through a private placement offer letter in Form PAS-4. 
All private placement offers should be made only to those persons whose names are recorded by the company
before sending the invitation to subscribe. The persons whose names are recorded will receive the offer, and the
company should maintain a complete record of the offers in Form PAS-5. 
A company should send a private placement offer letter accompanied by an application form serially numbered
and addressed either in writing or electronic mode, specifically to the person to whom such an offer is made. The
company should send the private placement offer letter to the specific person within thirty days of recording the
person’s name. 
The person to whom the private placement offer letter is addressed in the application form should accept the
offer. The company should file the complete information of the offer with the Registrar of Companies (‘ROC’)
within thirty days of circulating the private placement offer letter.
Special Resolution for Making Private Placement
The company can make a private placement of its securities after approval of shareholders of the company for
the proposed offer or invitation to subscribe to securities by passing a Special Resolution for every offer or
invitation. 
Maximum Limit of Private Placement
The select persons to whom the company can make a private placement should not exceed fifty persons or such
a higher number prescribed by the Rules in a financial year. The limit of fifty persons excludes the qualified
institutional buyers and employees of the company who are offered securities in the financial year under a
scheme of employees stock option as per Section 62 of the Act.
The Rules state that the offer or invitation of private placement should not be more than two hundred persons in
the aggregate financial year. The limit of two hundred persons will exclude the qualified institutional buyers and
employees of the company offered securities in the financial year under a scheme of employees stock option as
per Section 62 of the Act.
The value of the private placement offer or invitation for each person should be of an investment size of
Rs.20,000 of the face value of the securities. However, the limit of the maximum number of select persons and
value of private placement does not apply to the following: 
Non-banking financial companies registered under the Reserve Bank of India Act, 1934.
Housing finance companies registered with the National Housing Bank under National Housing Bank Act, 1987.
Mode of Payment of Private Placement 
Every identified person wanting to subscribe to the private placement issue should apply through the private
placement application given to such a person by the company along with the subscription money paid by
demand draft or cheque or other banking channel and not by cash.
The subscribers should make the securities subscription payment from their bank account to the securities. The
company must keep a record of bank accounts from where they receive the subscription payments.
Allotment of Private Placement
A company making an invitation or offer of private placement should allot its securities within sixty days from the
receipt of the application monies for the securities. The company should repay the application money to the
subscribers within fifteen days from the completion date of sixty days if the company is unable to allot securities
within sixty days. 
When the company fails to repay the application money within fifteen days after completion of sixty days, it is
liable to repay the subscription money with an interest rate of 12% per annum from the expiry of the sixtieth day. 
The company must keep the application money in a separate bank account in a scheduled bank and should not
utilise it for any purpose other than the following:
For adjustment against allotment of securities.
For repaying application monies where the company is unable to allot securities. 
Record of Private Placement Offers
The company should maintain a complete record of private placement offers in Form PAS-5.  The copy of the
record of offers and the private placement offer letter in Form PAS-4 should be filed with the ROC with the fees
as provided in the Companies (Registration Offices and Fees) Rules, 2014 within thirty days of the circulation of
the private placement offer letter. 
When the company is a listed company, it should file the record of private placement offers along with the private
placement offer letter with the Securities and Exchange Board within thirty days of circulating the private
placement offer letter.
Return of Allotment of Private Placement
The company must file the return of allotment of securities with the ROC, after allotting the securities, within thirty
days of allotment in Form PAS-3 and the fees as provided in the Companies (Registration Offices and Fees)
Rules, 2014 having the following information: 
Complete list of all security holders.
Full name, address, PAN, and E-mail of such security holders.
Class of security held.
Date of allotment of security.
Number of securities held, the amount paid and nominal value on such securities. 
Particulars of the consideration received if the securities were issued for consideration other than cash. 
The Form PAS-3 filed by the company, other than One Person Company and small company, should be pre-
certified by a practising CMA (Certified Management Accountant), CA (Chartered Accountant) or CS (Company
Secretary). 
Penalty for Non-Compliance of Private Placement 
A company, its directors and promoters will be liable for a penalty if the company accepts monies or makes an
offer in contravention of the Act and Rules. The penalty may extend to the amount involved in the invitation or
offer or Rs.2 crore, whichever is higher. The company should also refund all monies to the subscribers within
thirty days of the order imposing the penalty.
Frequently Asked Questions
What kinds of securities are covered under private placement?
The following securities can be issued under private placement:
Equity shares
Preference shares
Debentures
Which documents are required for the issue of securities through private placement?
The following documents are required to issue securities through private placement:
Valuation report
Private placement offer 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.
Is it required to file MGT-14 with the ROC mandatorily?
Yes. MGT 14 must be filed with the ROC pursuant to passing of board resolution for issue of securities within 30
days of passing such board resolution.
Can private placement be made to existing shareholders?
The Companies Act, 2013 does not specifically mention the offer of securities to existing shareholders. In most
cases, promoters and directors are also the shareholders of the company to whom private placement is
applicable.  Further, an offer of securities to the existing shareholders is an offer to a select group of persons and
not open to the public. Thus, shares can be issued to existing shareholders under the private placement.
Is the limit of 200 persons considered for the issue of each kind of security or jointly for all securities?
The restriction of 200 persons applies individually for each kind of security, i.e. equity share, preference share or
debenture. Thus, 200 person limit is considered for the issue of each kind of security and not jointly. For
example, the offer of equity shares to 200 persons and debentures to 200 persons in the same financial year is
valid.
 MCA Form MGT-14
Form MGT 14 was introduced in the Companies Act of 2013 with the objective of filing certain
resolutions with the Registrar of Companies. Such resolutions must be filed after the passing of
the same at the meeting held by the Board/Shareholders/Creditors of the company. This article
looks at the resolutions to be filed in Form MGT 14.

Categories of Filing Resolutions

The resolutions have to be filed in the E-form for the following categories:

 Board Resolutions
 Special resolutions
 Ordinary Resolutions

Board resolutions must be duly filed in Annexure A, special resolutions in Annexure B and
ordinary resolutions in Annexure C. Let us now examine them separately.

Annexure A – Board Resolution

This annexure need not be filed by Private Limited Companies, though private limited companies
which are subsidiaries of public limited entities are not exempt from this provision.

The following board resolutions must be filed in Form MGT-14:

 To issue securities, inclusive of debentures, either inside or outside the confines of India.
It may be noted that in case of shares, issue of security denotes issue of Letter of Offer.
 To borrow money from any sources, including a director.
 To invest the funds of the company. (Also follow provisions of Section 186)
 To issue loans or provide guarantee or security in respect of loans. (Also follow
provisions of Section 186)
 To endorse the financial statement and Board’s report.
 To appoint internal auditors.
 To appoint Secretarial Auditor.
 To appoint or remove Key Managerial Personnel.
 To make political contributions.
 To take decisions on those shareholders relating to the money unpaid on their shares.
 To sanction buy-back of securities under Section 68.
 To expand the business of the company.
 To endorse Amalgamation, Merger or Reconstruction.
 Take over a company or acquire a controlling or considerable stake in another company.

Annexure B – Special Resolution

The following special resolutions must be files in Annexure B of the form:

1. For companies registered under Section 8 for converting itself into a company of another
kind or alteration of its MOA or AOA.
 2. Change of location of registered office in the same State, but outside the local limits of
the city, town or village where it is currently situated.
3. Change of registered office from the jurisdiction of one registrar to another in the same
sate.
4. Amendment of Articles of a private limited company for entrenchment of any provisions.
This must be consented by all the members of a private company.
5. Amendment of Articles of a public company for entrenchment of any Provisions.
6. Modification in name of the company to be sanctioned by a special resolution.
7. If a company has raised funds from the public through issue of a prospectus, and the
money so raised remains unutilized, the company is not entitled to change the object for
which the money was raised, except by passing a special resolution.
8. A company is not authorized to modify the terms of a contract referred to in the
prospectus or objects for which the prospectus was issued, except on the approval of the
concerned authority.
9. A company is entitled to pass a special resolution in its general meeting, issue depository
receipts in any foreign country in the specified manner, in compliance with the pertinent
conditions.
10. If a shared capital of the company is classified into various classes of shares, the rights
attached to the shares of any class may be modified with the written consent of the
authorized shareholders; or through a special resolution passed at a meeting of the
shareholders of the issued shares of that class.
11. Private offer of companies needs the consent of the company by a special resolution.
12. Issue of ‘Sweat Equity Shares”.
13. Reduction of share capital.
14. Special resolution for endorsing scheme for the purchase of fully-paid shares for the
welfare of the employees.
15. Buy back of shares.
16. A company is authorized to issue debentures with an option of converting these
debentures into shares, either wholly or partly during the stage of redemption; on the
condition that the operation is sanctioned by a special resolution passed at the general
meeting.
17. Maintain registers at any other Indian locality.
18. Re-appointment of Independent Director.
19. The members of a company are empowered to specify any lesser number of companies
in which the directors of the company may act as directors. The specification can only be
done after the process of approval through a special resolution.
20. To sell, lease or dispose the whole or the majority of the undertakings of the company.
21. To invest the compensations received by the company due to any merger or
amalgamation in trust securities.
22. To borrow money, where the prospective borrowable amount, as well as the money
previously borrowed by the company exceeds the aggregate of its paid-up share capital
and free reserves, barring the temporary loans obtained from the company’s bankers in
the normal course of business.
23. To remit, or grant time for the repayment of any debt owed by the director.
24. To approve scheme for providing loans to MD or WTD.
25. Loan and investment by company which is above 60% of paid up share capital or 100%
of free reserve,
26. Recruitment of a person as Managerial Personnel, given that his/her age is above 70
years.
27. Remuneration to managerial personnel on the event of insufficient profits.
28. Special resolution for closure of the company by Tribunal
29. Special resolution for closure of the company.
30. Conversion of a private limited company into a One Person Company.

Annexure C – Ordinary Resolutions

This annexure should be inclusive of the following ordinary resolutions:
 1. Change of name as per the discretion of the Registrar if the application for reservation of
name was applied by using incorrect information.
2. Change of name as per the discretion of the Central Government.
3. Issue of equity shares with differential rights needs to be endorsed by an ordinary
resolution passed at a general meeting held by the shareholders.
4. A company is entitled to increase or consolidate its capital, or on the other hand increase
or consolidate its capital, or sub-divide or cancel shares which haven’t been taken,
provided that such an action is endorsed by its Articles.
5. A private company is not vested with the rights to offer shares to employees under a
scheme of employee’s stock option, except on the consent of the shareholders through a
special resolution.
6. To transact the consideration of financial statements and the reports of the Board of
Directors and Auditors, declaration of dividends, appointment of new directors in place of
the retiring ones and determining the remuneration of the auditors in the Annual General
Meeting under a special resolution.
7. Approval of general meeting for the issue of bonus shares.
8. Approval of general meeting for encouraging deposits from members.
9. Appointment of auditors.
10. Appointment of branch auditors.
11. Appointment of independent director.
12. Appointment of a director by small shareholders.
13. Appointment of directors at the initial general meeting or on the proposal of a person with
a deposit of Rs 1,00,000.
14. Remuneration of cost auditor will be set by an ordinary resolution at the general meeting.
15. Ordinary resolution for entering a specified contract or arrangement with the concerned
party, for Companies with prescribed paid-up capital or for transactions which exceed the
prescribed amount.
16. To mention any non-monetary transactions wherein the directors of the company or
holding, subsidiary or associate company are involved.

Time Frame
eForm MGT 14 needs to be filed with the ROC within 30 days from the date of passing of
resolution or formulating the agreement.