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In the competitive era, Private Placement of Shares is in practice by many companies to raise funds. It is important for all the companies to have an adequate capital to run the business as well as to meet the working capital of the company.
Company may issue of shares and securities by the way of:
When the securities are not sold through public offering, but rather by private offering is termed as Private Placement. In this case company offers securities to small group of investors chosen by the company.
All monies Payable towards subscription of securities and shares shall be paid through demand draft, cheques and not by cash. So, companies employing this type of financing do not need to comply with the same reporting and disclosure requirement as complied under public offering.
It has minimal regulatory compliances and standards and the investment does not requires prospectus like in case of issue through IPO. Private placement does not require disclosure of detailed financial statement.
Financing equity through initial public offer or further public offering is a time taking process and takes time to configure and the cost associated of doing this process is a burden on the company.
Private placement is the company’s ability to remain private. Less negotiation is required before the company receives funding from the small investors.
Potential investor receiving the private placement learns about the business team as well as the performance of the company.
Before private placement, various factors and information is required to be furnished to the category of potential investors to maintain the confidence before investing –
Certain criteria require to be fulfilled for private placement process-
The Ministry of Corporate Affairs has made significant changes in the procedure of Private Placement and company shall apply certain provisions at the time of making Private Placement-
A company may make the private placement subject to the provision of the section 42.
Private Placement shall be made only to a selected group of person who have been identified by the board as “Identified Person whose number shall not exceed 50 fifty or such higher amount as may be prescribed which excludes qualified institutional buyers and employees of the company to whom ESOP has been offered by the Company.
Deemed public offer
Applicable to both Private and Public company
QIB-Qualified Institutional Buyer
Private Placement is an important aspect of enhancing capital and the involvement in the accredited investors and can be used for various purposes.
The process also helps the company in emerging financial technology offerings. Private placement of shares is a less expensive process and is the fastest way of raising capital.
Also Read:What is the right time to raise funds?How to Raise Funds with the Right Pitch Deck for Investors?
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