Essential Conditions for Private Placement

29 April 2016 • Simratjeet Kaur


Essential Conditions for Private Placement

29 April 2016 • Simratjeet Kaur

Mentioned below are the highlights/essentials for making preferential allotment of shares:

  1. Holding a Board Meeting to consider Preferential Issue of securities.
  1. Holding of General Meeting of shareholders for authorizing preferential issue.
  1. Disclosures w.r.t. the names of proposed allottees, pre and post issue shareholding pattern of the company, the terms of the securities to be issued etc, should be made in the explanatory statement which will be annexed with the Notice of the General Meeting.
  1. An offer letter will be given to the proposed subscribers of the issue. The offer letter shall be approved by the shareholders in the general meeting.
  1. The price of the security has to be justified through a valuation report by a Registered Valuer who shall be a an Independent Merchant Banker who is registered with SEBI or an Independent Chartered Accountant in practice having a minimum experience of 10 years. MCA issued a notification G.S.R. 413(E) on 18th June, 2014 clarifying that price of security to be issued on preferential basis should not be less than the price determined by the Registered Valuer.
  1. The monies which will be received on application shall be kept in a separate bank account. The condition of opening a separate bank account is not required for issue of securities on Rights Basis.
  1. Allotment of securities shall be done within 60 days of receiving share application money.
  1. Prior to the allotment of shares, the share application money cannot be used for any other purposes.

You may also want to read:

  1. Issue of shares by Private placement (includes Preferential Issue)


  1. if i have filed the offer letter i.e. form GNL-2 what is the time perios within which i need to receive the application money

    1. As per sub section 3 of section 39 of companies Act, 2013 the application money must be received within 30 days from the date of issue of prospectus or such other period as may be specified by SEBI. For other companies, there is no prescribed time as such. It has no connection with GNL-2 because GNL-2 is meant for intimation only and is not related to application money.

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