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Raising Funds Public Offer Right Issue
Raising Funds Public Offer Right Issue
K. SETHURAMAN
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PUBLIC OFFER & PRIVATE PLACEMENT (S.23)
Public company to issue securities:
a) To public through prospectus.
b) Through private placement.
c) Through rights issue or bonus issue.
Private company to issue securities
a) Through Rights Issue or Bonus Issue
b) Through Private Placement
Public Issue includes:
a) Initial Public Offer / Further Public Offer
b) Offer for sale
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PROSPECTUS (SEC 26)
A company making a public issue also to comply with the
disclosure requirements and matters to be stated in the
Prospectus as per SEBI (ICDR) Regulations, 2009.
Contents of Prospectus are listed out in the Section and in the
Companies (Prospectus and Allotment of Securities) Rules,
2014
Following are some of the additional disclosures:
(a) The sources of Promoter contribution in the prescribed manner
(b) Name and Address of CFO
(c) Particulars relating to (a) management perception of risk factor
specific to the project, (b) gestation period of the project, (c)
extent of progress made in the project and (d) deadline for
completion of Project
(d) Litigation / Legal action pending or taken by any Govt dept or
statutory body against promoters of the company during the last
five years
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VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27)
A company shall not vary at any time the terms of contract or
objects for which the prospectus was at any time issued
except with the approval of shareholders by passing a special
resolution through Postal Ballot.
Justification for such variation should be clearly set out in the
notice and published in newspapers in Form PAS - 1.
The notice of the Special Resolution to contain, inter-alia:
(a) Original purpose or object of issue
(b) Total money raised and spent for the object stated in the
prospectus
(c) Unutilized money so raised through prospectus
(d) Particulars of proposed variation and reasons or justification
for seeking variation
(e) The risk factors pertaining to the new object
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VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27)
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OFFER OF SALE (SECTION 28)
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DEMATERIALIZED FORM (SECTION 29)
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CRIMINAL LIABILITY FOR MIS-STATEMENTS IN
PROSPECTUS (SEC 34)
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CIVIL LIABILITY FOR MIS-STATEMENT IN
PROSPECTUS (SEC 35)
Company and the following persons liable to pay
compensation for any statement included in the prospectus
which is misleading, to every person who has subscribed for
securities and has sustained any loss or damage as a
consequence.
a) Director at the time of issue of prospectus.
b) Promoter of the company.
c) Person who has authorised himself to be named as a
director.
d) Person who has authorised the issue of prospectus.
e) An expert.
Above persons personally liable without any limitation of
liability for all losses incurred by the subscribers if it is
proved that prospectus was issued with intent to defraud
the applicants.
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PUNISHMENT FOR FRAUDULENTLY INDUCING
PERSONS TO INVEST MONEY (SEC 36)
Any person who, either knowingly or recklessly makes any
statement, promise or forecast which is false, deceptive or
misleading, or deliberately conceals any material facts, to
induce another person to enter into, or to offer to enter into-
(a) any agreement for, or with a view to, acquiring, disposing
of, subscribing for, or underwriting securities; or
(b) any agreement, the purpose or the pretended purpose of
which is to secure a profit to any of the parties from the
yield of securities or by reference to fluctuations in the
value of securities; or
(c) any agreement for, or with a view to obtaining credit
facilities from any bank of financial institution;
Shall be liable for action under Section 447.
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ACTION BY AFFECTED PERSONS (SEC 37)
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PUNISHMENT FOR PERSONATION FOR
ACQUISITION OF SECURITIES (SEC 38)
Any person who:
a) Makes or abets making of an application in a fictitious
name to a company for acquiring its securities
b) Makes or abets making multiple applications for
acquiring its securities
c) Otherwise induces a company to allot or register any
transfer of securities in a fictitious name
Shall be liable for action under section 447.
The Court may order a convicted person for disgorgement
of gain and seizure and disposal of securities in
possession of such person.
Amount received as above to be credited to IEPF.
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SECURITIES TO BE DEALT WITH IN STOCK
EXCHANGES (SEC 40)
Company making a public offer, before making the offer
shall make an application to a recognised stock exchange and
obtain permission for listing the securities
Name of the stock exchanges to be stated in the Prospectus
All application monies received from Public to be kept in a
separate Bank Account in a scheduled bank except for
adjustment against allotment of securities or refund of monies
within the time specified by SEBI where the company is unable
to allot securities
Waiver of compliance with any of the above requirements shall
be void
Company may pay commission in connection with the
subscription of its securities
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PRIVATE PLACEMENT (SEC 42)
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KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
Provisions common to all class of companies – private, public
(listed and unlisted)
Listed companies are governed by SEBI ICDR Regulations, 2009
Offer through a Private Placement, Offer letter to a selected known
group of persons with the prior approval of shareholders by way of
a special resolution for each offer (equity shares)
Company to pass a special resolution only once in a year for
all offers made during the year in case of issue of Non-
Convertible Debentures
Offer to be made to persons whose names are recorded by the
company prior to making the offer
Application serially numbered with Letter of Offer to be addressed
specifically to the concerned person and no other person shall be
allowed to apply through such form
Even an agreement to allot securities to more than the
prescribed number of persons (whether money received or not)
shall be deemed to be an offer to the Public
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KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
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KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
Subscription money by way of cheque / draft from the
bank account of the sole / first holders name
Allotment to be completed within 60 days of receipt of
application money – refund within 15 days thereafter;
Else interest @ 12% from 60th day
Application money to be kept in a separate Bank
account till allotment and cannot be utilised other
than for allotment / refund
Complete information about private placement to be
filed with RoC within 30 days of the private placement
offer; Listed Company – also with SEBI
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KEY PROVISIONS GOVERNING PRIVATE PLACEMENT
The Company to maintain a complete record of private
placement in Form PAS-5
No advertisement or media announcement or engage
agents to inform the public at large of the private
placement is permitted
In case of contravention, the company promoters and
directors are liable for penalty which may extend to the
amount involved or Rs. 2 crore whichever is higher
Company to refund all monies to subscribers within 30
days of the order imposing penalty
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ADDITIONAL REQUIREMENT FOR PREFERENTIAL ISSUE
OF EQUITY SHARES / CONVERTIBLE SECURITIES
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RIGHTS ISSUE
Companies Act, 2013 has not defined the concept of
‘Rights Issue’; but it is defined under the SEBI ICDR
Regulations
‘Rights Issue’ means an offer of equity shares and
convertible securities by a listed issuer to the
shareholders of the issuer as on the ‘record date’ fixed
for the said purpose
No complicated procedures unlike in the case of ‘Public
Issue’ or ‘Private Placement’
Requirements of Rights Issue
Rights issue to be made after securing board of directors
approval at the Board meeting
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RIGHTS ISSUE
The issue price need not be valued by registered valuers
Offering shares (Equity / Preference Shares) to the holders of
equity shares on a uniform basis (in the same proportion in
reference to his equity holding on a ‘cutoff’ date)
Offer to be kept open for at least 15 days and not exceeding
30 days (issue cannot be open ended)
Letter of offer to be despatched through registered post /
speed post at least 3 days before the opening of the issue
Listed Companies whose shares are listed should adhere to
the requirement set out under SEBI (ICDR) Regulations, 2009
Non compliance with the requirements of a ‘Rights Issue’ shall
attract punishment under Section 450 as no specific penalty or
punishment is provided in the section regulating ‘Rights Issue’.
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EMPLOYEES’ STOCK OPTION
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DEBENTURES
A company may issue debentures – convertible or non-
convertible
Issue of convertible debentures into shares requires
approval of shareholders by passing a special resolution.
Debenture Trustee to be appointed before issuing a
prospectus or making an offer to company’s members
exceeding 500 persons
Company issuing debentures to execute debenture trust
deed not later than 60 days after the allotment of
debentures
No secured debentures can be issued with a redemption
period beyond ten years from the date of the issue; A
company engaged in setting up infrastructure projects
can issue debentures which are redeemable not beyond
thirty years from the date of the issue.
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DEBENTURES
A company (including manufacturing / infrastructure) issuing
NCDs to create DRR equivalent to atleast 25% of the amount
raised by the debenture issue before the debenture
redemption commences
No DRR by All India Financial Institutions and Banking
Companies for debentures issued;
NBFCs registered under RBI Act to create DRR of 25% for
debentures issued through public issue; No DRR in case of
privately placed debentures by them.
The company shall on or before 30th April each year invest or
deposit a sum which is not less than 15% of the amount of its
debentures maturing during the year ending on 31st day of
March of the next year (As per Rules)
DRR shall not be utilised by the company except for the
purpose of redemption of debentures.
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ISSUE OF PREFERENCE SHARES
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ISSUE OF PREFERENCE SHARES
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VARIATION OF SHAREHOLDERS’ RIGHTS (SEC 48)
(SECTION NOT NOTIFIED YET)
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PROHIBITION ON ISSUE OF SHARES AT A
DISCOUNT (SEC 53)
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ACCEPTANCE OF DEPOSITS OF
COMPANIES (SEC 73-76)
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ACCEPTANCE OF DEPOSITS (SEC 73)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
Various enhanced disclosures under the
Companies (Acceptance of Deposits) Rules, 2014
A. General Information
1. Management perception of risk factors
2. Details of default including amount involved, duration
of default and present status in repayment of:
(a) Statutory dues
(b) Debentures and interest thereon
(c) Loans from any bank or financial institutions and
interest thereon
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
B. Particulars of Deposit Scheme
1. Date of passing of Board Resolution
2. Date of passing resolution in General Meeting authorising the
invitation of such deposits
3. Type of deposits - whether secured or unsecured
4. Outstanding deposits as on the date of issue of circular and
amount of deposit proposed to be raised and amount of deposit
repayable within 12 months
5. Objects of raising the deposit
6. Particulars of Credit rating obtained
7. Extent of deposit insurance
8. Short particulars of charge created in case of secured deposits
9. Interest of directors, promoters and KMPs in such deposits
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
C. Financial Position of the Company
1. Interest coverage ratio for the last three years
2. Audited Cash flow statement for the last three years
3. Any changes in accounting policies in the last three
years
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]
D. Declarations by directors to include:
1. That the Company will not become insolvent within
a period of one year from the date of the circular
2. That the deposits outstanding before 01.04.2014 have
been repaid / will be repaid and till repayment they
shall be unsecured and rank pari passu with the
unsecured liabilities
3. That in case of adverse change in credit rating,
depositors will be given chance to withdraw
deposits without any penalty
4. That the deposits shall be used only for the purposes
indicated in the Circular
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
Terms and conditions for acceptance of Deposits
1) Period: Repayable not less than six months or not more than thirty
six months (may accept / renew deposits repayable no earlier than
three months not exceeding ten percent of the paid up share capital
and free reserves of the company)
2) No company shall accept / renew any deposits from its members
more than 25% of the aggregate of its paid up capital and free
reserves. (outstanding at any point of time)
3) No eligible company shall accept / renew:
a) Deposits from its members exceeding 10% of its paid up share
capital and free reserves. (outstanding at any point of time)
b) Deposits from public exceeding 25% of its paid up share capital
and free reserves. (outstanding at any point of time)
4) No government company can accept in excess of 35% of its paid up
capital and free reserves (outstanding at any point of time)
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ACCEPTING DEPOSITS FROM MEMBERS
[SEC 73(2)]….(CONTD)
5) Rate of Interest and Brokerage: Not exceeding a rate
maximum permitted by RBI for acceptance of deposits
by Non-Banking Financial Companies. The person
who is authorised in writing by the company to
solicit deposits shall only be entitled to brokerage.
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DEPOSITS ACCEPTED BEFORE THE
COMMENCEMENT OF THE ACT (SEC 74)
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DEPOSITS ACCEPTED BEFORE THE
COMMENCEMENT OF THE ACT (SEC 74)
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DEPOSITS ACCEPTED BEFORE THE COMMENCEMENT OF
THE ACT (SECTION 74 & 75)
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ACCEPTANCE OF DEPOSITS FROM PUBLIC (SEC 76)
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THANK YOU
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