Private Placement Services: Unlock Customised Investment Solutions

A private placement is a method of raising capital by offering securities (like shares, debentures, or bonds) to a select group of investors instead of making a public offering. It is governed by Section 42 of the Companies Act, 2013, and allows companies to raise funds efficiently while maintaining confidentiality.

Private placement offers several advantages, including:

• Speed: Faster execution compared to public offerings due to fewer regulatory hurdles.
• Flexibility: Companies can structure the deal and pricing as per their needs.
• Targeted Investor Base: Enables the company to approach investors with a clear understanding of their business.
• Reduced Regulatory Burden: Requires fewer disclosures and compliance compared to public offerings.

Private placements in India are generally open to the following:

• Qualified Institutional Buyers (QIBs)
• High Net-Worth Individuals (HNIs)
• Employees under Employee Stock Option Plans (ESOPs)
• Other identified individuals or entities approved by the company’s board
  As per the Companies Act, the total number of investors cannot exceed 50 per offer or 200 in a financial year, excluding QIBs and ESOP participants.

The process is governed by the Companies Act, 2013, and SEBI (Securities and Exchange Board of India) regulations. Key requirements include:

• Board Resolution: Approval from the board of directors and shareholders.
• Offer Letter: Issued in Form PAS-4 to identified investors.
• Filing with Registrar of Companies (ROC): Details of the offer must be filed within 30 days in Form PAS-5.
• Cap on Investors: A maximum of 200 investors in a financial year.

A PPM is a legal document that outlines the terms of the private placement. It includes:

• Business overview and market potential
• Types of securities offered (shares, debentures, etc.)
• Risk factors and financial details
• Details of the subscription agreement
  The PPM serves as a critical document for attracting investors and ensuring regulatory compliance.

The process involves several steps:

1. Board Approval: Obtain approval through a board resolution.
2. Shareholder Resolution: Pass a special resolution at the general meeting.
3. Preparation of Offer Letter (Form PAS-4): Send the offer letter to identified investors.
4. Application Form Distribution: Provide serially numbered application forms to potential investors.
5. ROC Filings: File PAS-4 and PAS-5 with the Registrar of Companies within the specified timeline.
6. Allotment of Securities: Allot securities within 60 days of receiving application money.

• Confidentiality: Maintains privacy compared to public offerings.
• Targeted Approach: Allows companies to engage with specific investors.
• Cost-Effective: Involves lower regulatory and marketing costs.
• Quick Access to Capital: Facilitates faster fund-raising for urgent needs.

• Liquidity Risk: Securities issued through private placement are not readily tradable.
• Valuation Risk: Incorrect valuation of securities may impact investment returns.
• Regulatory Risk: Non-compliance with laws may result in penalties.
• Business Risk: The investment’s success depends on the company’s performance.

• For Investors: Capital gains tax applies on the sale of securities, with rates varying based on the holding period.
• For Issuers: Applicable taxes may include stamp duty on the issuance of securities and other transaction-related taxes.

At LawCrust, we offer end-to-end support for private placements, including:

• Drafting and reviewing PPMs and legal documents.
• Ensuring compliance with Indian regulations.
• Filing required forms with the ROC and other authorities.
• Facilitating investor communication and subscription processes.
• Providing expert advice on structuring and executing successful private placements.