Section 42 of the Companies Act, 2013, as altered by the Companies (Amendment) Act, 2017, and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 govern the sale of securities through a private placement. The term “Private Placement” refers to any offer of securities or invitation to subscribe to securities made to a small group of people (referred to as “identified individuals”) as part of a securities issue. Only the proposed issuance is considered a Private Placement.

What is Private Placement?

The sale of securities to a small number of private investors to obtain funds is referred to as a private placement. Mutual fund investors, banks, insurance firms, and other private investors are among them. Private placements differ from public offerings in that public offerings sell shares to anyone wanting to buy them on the open market, whereas private placements sell shares to specific investors.

Private Placement Offer Letter

Regulation related to private placement by companies has been given in Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 which state that the company should extend an invitation to subscribe to its securities through an offer letter in the Form PAS-4.

A private placement offer letter should be accompanied by an application form that is serially numbered and addressed, either in writing or electronically, to the individual to whom the offer is being made. Within thirty days of recording the person’s name, the corporation should deliver the private placement offer letter to that person. The offer should be accepted by the individual to whom the private placement offer letter is addressed in the application form. Within thirty days of sending out the private placement offer letter; the company shall submit all of the offer’s details with the Registrar of Companies (‘ROC’).

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