One of the most important requirements for the success of any business is finance. Just like a vehicle needs the fuel to run the business also requires the adequate amount of funds to get going and become successful. There are number of ways to raise funds for the business entities like raising funds from public, borrowing, bank loans and private placement etc. Thus, private placement of securities is basically a way by which the companies can raise funds to use an investment for their projects. Just like every other method there are number of aspects related to the Private placement that needs to be taken care of. Through this blog we will be taking a look at the various aspects of private placement of securities under the companies Act.
What is the Private Placement of Securities?
Private Placement of securities means making an offer or inviting applications to subscribe for the securities from the selected group of peoples by the companies through the issue of private placement offer letter satisfying each of the conditions mentioned below.
What are the important provisions for Private Placement of Securities?
- Number of people – In any financial year the aggregate number of subscribers to which this issue is made shall not exceed 200 persons. The qualified institutional buyers and the employees of the company are not to be counted while calculating the limit for private placement. One more important thing to be noted here is that this limit will be considered differently for each type of security.
- Special Resolution must be passed- In order to make an private placement of securities the special resolution is required to be passed by the shareholders of the company. However, incase the company is proposing to issue the non-convertible debenture then only a board resolution will be sufficient provided the borrowing is in the limit specified for the company.