Fund Raising In Pvt Ltd Co Under Companies Act 2013

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CA Gaurav Mittal
FUND RAISING IN PVT LTD CO UNDER COMPANIES ACT 2013
Under Companies Act,2013 A company can raise funds via 3 means :1)

Deposits.

2)

Loans.

3)

Capital.

The Deposits and loans has already been discussed earlier on this website
Deposits
:
Acceptance Of Deposits Under Section 73 76
Loans
:
Loan to Directors, Section 185 & section 186 Simplified.
Now we will discuss the third method i.e. Raising of Capital
Under Companies Act 2013, A Private Limited Company can raise funds via Capital in 3 Ways :1) Private Placement/ Preferential Allotment.
2) Right Issue/preferential Allotment.
3) Bonus Issue.
PRIVATE PLACEMENT.
Issuing shares to a select group of people like friends & family, angels or VC?
Brace up, the new Companies Act 2013, provides for lengthy compliance procedures.
Unlike before, even a private limited company has to follow the processes for private placement of
securities. Securities means equity shares, preference shares and debentures, convertible instruments,
redeemable instruments.
Private Placement means any offer of securities or invitation to subscribe securities (equity or
securities that convert to equity) to a select group of persons by a company, other than by way of
public offer, through issue of a private placement offer letter. (Section 42 of Companies Act 2013 and
Rule 14 under Companies (Prospectus and Allotment of Securities) Rules 2014)
These guidelines are applicable if the offer is made to a person who is currently not an equity shareholder
in the company.
KEY CONDITIONS
A) An offer can be made under a Private Placement Offer Letter to not more than 200 people
Not just the limitation of allotment to 200 people but even an invitation to subscribe cannot be made to
more than 200 people.
The 200 people limit excludes Qualified Institutional Buyers and Employees.
VARIOUS KNOW HOW TO OFFER LETTER
1) Offer letter in PAS 4 + application form serial numbered + addressed to specific person to be sent
in writing or electronic mode.
2) While passing special resolution basis or justification of pricing (including premium) to be made in
explanatory statement.

3)

Offer per person cannot be for less than Rs. 20,000

A person cannot apply for shares of Less than Rs 20,000 Face Value.
4)

Payment to be made from bank A/c of person subscribing.

5)

Company to keep record of such Bank A/c.

6) To maintain complete record in PAS 5 and PAS 4 to be filed with ROC

WHAT OFFER LETTER SHOULD CONTAIN
1)

Business carried out by Co & subsidiaries.

2)
3)

Managements perception of risk factors.

Details of default including interest statutory dues, deposit, loan, etc.

4)

Time schedule for which offer is valid.

5)

Price of offer and its justification.

6)

Name & Address of the valuer who did valuation.

7)

Purpose and object of offer.

8)

Contribution by promoters or directors.

9)

Disclosure of interest of director, promoter or KMP.

10) Details of litigation pending.

11)Remuneration of directors for current + last 3 yrs.
12)Related party transaction for last 3 years relating to loans, guarantee or securities.
13)Auditors reservations or qualifications or adverse remarks for last 5 years its impact on FS &
corrective action taken / proposed for each comment.
14)Material frauds last 3 years
Financial position
1)

Capital structure before & after;

2)

Profit before & after tax for 3 years

3)

Dividend last 3 years

4)

Interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid).

5)

Summary of financial position including Cash Flows last 3 years audited

6) Change in accounting policies in last 3 years and its effect on profits & Reserves.
7) Declaration by director of compliance.
B) The money so received shall be kept in a separate bank account of the company and utilized only for
allotment (or repayment).
KEY POINTS UNDER THIS

1)

On allotment file PAS -3 in 30 days.

2)

Detail to include PAN & e-mail id of each member to whom share allotted.

3)

Share Allotment cannot be in cash now.

4)

If not followed Penalty of amount involved or 2 Cr, whichever is high+ to refund the money.

5)

Effective from 01.04.2014.

6) Share to be allotted within 60 days of receipt of allotment money.

PROCEDURE FOR PRIVATE PLACEMENT
1.
Check Provision in Article regarding Private Placement
2.
Call Board Meeting:
To Prepare Offer Letter
Make Proposal for Private Placement
Prepare list of persons to whom option will be given
1.
Call EGM:
Pass SR- will be valid for 12 month
If not completed PP in 12 Month pass another SR
Approve Draft Offer Letter by SR
1.
File MGT-14 with ROC
Attachments:
Notice of EGM
CTC of SR
Minutes
2.
Issue offer letter in PAS-4 within 30 days of record of name of persons:
Application form serially numbered
Address to the persons to whom the offer is made
1.
Prepare complete record of Private Placement in PAS-5
2.
File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was
given.
Called BM for allotment of shares
File PAS-3 with Roc within 30 days if Allotment. Attachments: List of Allottees BR for allotment of
share
File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
12. Issue Share Certificates.
<

p style=text-align: justify;>RIGHT ISSUE/ PREFERENTIAL ALLOTMENT

Preferential Offer means an issue of shares or other securities, by a Company to any select
person or group of persons on a preferential basis and does not include shares or other
securities offered through a public issue, rights issue, employee stock option scheme, employee
stock purchase scheme or an issue of sweat equity shares or bonus shares or depository
receipts issued in a country outside India or foreign securities.
Essentials:
o
For a pro-rata issuance of equity and securities converting into equity, to current equity
shareholders in the company, then the shareholders of the company has to approve through a special
resolution, at least 3 days prior to such offer. The Articles of Association has to have an enabling
provision.
The price for the security offered has to be supported by a valuation report by a Registered Valuer.
The validity for such Special resolution is 12 months, within which the company has to complete the
allotments.

The securities allotted has to be fully paid-up (i.e. it cannot be partly-paid for).
When obtaining the shareholder approval, the below details has to be decided and included in
the disclosures:

the objects of the issue;

the total number of shares or other securities to be issued;
the price or price band at/within which the allotment is proposed;
basis on which the price has been arrived at along with report of the registered valuer;
relevant date with reference to which the price has been arrived at;
the class or classes of persons to whom the allotment is proposed to be made;
intention of promoters, directors or key managerial personnel to subscribe to the offer;
the proposed time within which the allotment shall be completed;
the names of the proposed allottees and the percentage of post preferential offer capital that may be
held by them;
the change in control, if any, in the company that would occur consequent to the preferential offer;
the number of persons to whom allotment on preferential basis have already been made during the
year, in terms of number of securities as well as price;
the justification for the allotment proposed to be made for consideration other than cash together with
valuation report of the registered valuer.
The pre issue and post issue shareholding pattern of the company.
PROCEDURE FOR PREFERENTIAL ALLOTMENT
a. Check Provision in Article regarding Preferential Allotment

b. Call Board Meeting:

To Prepare Offer Letter
Make Proposal for Preferential Allotment
Prepare list of persons to whom option will be given
Call EGM
c. Call EGM:
Pass SR- will be valid for 12 month
If not completed PP in 12 Month pass another SR
Approve Draft Offer Letter by SR
d. File MGT-14 with ROC
Attachments:
Notice of EGM
CTC of SR
Minutes
e. Issue offer letter in PAS-4 within 30 days of record of name of persons:
Application form serially numbered
Address to the persons to whom the offer is made
f. Prepare complete record of Preferential Placement in PAS-5
g. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
h. Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
i. Called BM for allotment of shares
j. File PAS-3 with Roc within 30 days if Allotment. Attachments: List of Allottees BR for allotment of
share
k. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
l. Issue Share Certificates.
(Author may be contacted at mittalgaurav05@gmail.com)
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