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How the private companies issue their shares?
How the private companies issue their shares?
The sale is a primary source of fund that a company get by serving its customers. As return customers pay price for its goods or services. When a company requires finance for the day to day operation or expansion and when a sale is insufficient, it can raise fund through the issue of debt capital or share capital. If a company choose to issue shares, it can do so. But the question is:
Can a company ask the public to subscribe for its shares?
No, there no way of issuing shares to the public as companies act doesn't allow to do so.
If so, how do a private company issue shares?
Section 42 of the act specified a procedure to issue share which is called "private Placement".
According to Section 42, a private placement is when a company makes an offer or invitation to subscribe securities to a select group of individuals through the issue of a private placement offer letter.
So a private company can issue its shares under private placement basis with the following conditions.
- A special resolution should be passed in the members meeting to offer shares. (AGM or EGM).
- Offer can be made to a maximum of Two Hundred individual in a year.
- Value of offer per person should not be less than INR 20,000 of the face value of securities.
- Shares value should be certified by CA.
- Payment should be received through bank account maintained for this purpose.
- Shares should be allocated within 60 days of receipt of the application money.
Do they need to file any forms with ROC?
Yes, Every company which issues shares should file various forms within a stipulated time. So the company issuing shares on private placement basis has to file following forms with registrar.
1. MGT-14 within 30 days of the special resolution passed at members meeting.; Attachments to MGT-14 are; a. Notice of EGM b. Copy of SR passed at EGM c. Minutes of EGM
2. GLN-2 within 30 days of the offer of shares:
Along with theAttachments; a. PAS-4( Private Placement Letter, b. PAS-5(complete record of private placement)
3. PAS-3 within 30 days of allotment of shares.
So the private company can not offer its shares to the public, but it can issue shares to select persons or group passing special resolution in AGM or EGM.
If you have questions regarding the issue of shares on a private placement basis, please feel free to ask the questions.
