Question

Write Short Notes on Private Placements.

Answer 1

Meaning: -

A public company can raise share capital either by making an offer to the public or by placing the shares privately i.e. without inviting the public for the subscription of its shares or debentures.

Sometimes a public company wants to raise capital privately. In this case, it will not offer the shares to the general public, but distribute the shares amongst a selected group of persons. For doing this, it may take the help of an underwriter, who finds the buyers for such a company. This is usually done by new companies or small scale public companies. When a public company makes private placement, it prepares a statement in lieu of prospectus and not-prospectus. 

Steps involved in Private placements: -

1. Terms and conditions: -The terms and conditions regarding the value of the instrument, the maturity period, the rate of interest, should be clearly laid down. The terms and conditions must be finalized at the board meeting.

2. Credit Rating: -Nowadays, it is mandatory (compulsory) to obtain credit (acknowledgment) rating from a recognised credit rating agency. The credit rating agency evaluates (estimate) the various aspects of the concerned instruments and then gives a proper rating.

3. Confidential (secret) information memorandum (CIM): -This document is similar to offer documents in the case of the issue of shares. It contains all the relevant details about the company and the instrument.

4. Trustees to the Issue: -The Company has to appoint trustees to protect the interest of the investors.

5. Trust deed: -The Company must finalize a trust deed with the trustees to the issue.

6. Filing of trust Deed: -The trust deed must be filed with the ROC within the prescribed time limit.

7. Pricing of the Issue: -the company takes a decision regarding the pricing of the issues.