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CompaniesAct.in: Graduated Private Placement - much needed overhaul CompaniesAct.in
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Updated On: 28/06/2014

Now updated based on Final Rules

Funds/ paisa/ money, whatever we may call it……..but its the lifeline of any business. Talk to any businessman and he talks about fund scarcity and how to raise funds for the Company. 

For any corporate, when it comes to fund raising, Private Placements are one of the most favored modes used by companies. The main reason behind this favouratism is the ease available to companies and their managements, in terms of less legal hassles, choice available for selecting the allottees or amounts to be raised etc.The Companies Act, 1956 and SEBI guidelines and regulations presently govern conditions for private placement, depending upon the nature of the company.

However, in the existing legal regime, there existed certain grey areas, which have time and again been misused by companies and their promoters to indulge in malpractices, thereby compromising the interest of innocent stakeholders.

Before we go any further to discuss the provisions relating to Private Placements, it is necessary to understand the meaning and connotation of the said term. Until the Companies Act 2013, the term ‘Private Placement’ was not defined under any law though the Securities And Exchange Board Of India (Issue Of Capital And Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”) do define the term “Preferential Allotment” as any allotment to one or more shareholder(s) or person(s) instead of all the existing shareholders.

For the 1st time in Indian legal history, the term “Private Placement” has been defined under the Companies Act 2013. Section ……….. of the Act defines “Private Placement” to mean any offer of securities or invitation to subscribe securities to a select group of persons by a company other than by way of public offer through issue of private placement offer letter.


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