Meaning: -A public company can raise share capital
either by making an offer to public or by placing the shares privately i.e.
without inviting the public for 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 general public, but distribute the
shares amongst selected group of persons. For doing this, it may take the help
of underwriter, who finds the buyers for such company. This is usually done by
new companies or small scale public companies. When a public company makes
private placement, it prepares 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 (acknowledgement) rating from
recognised credit rating agency. The credit rating agency evaluates (estimate)
the various aspects of the concerned instruments and then gives proper rating.
3. Confidential
(secret) information memorandum (CIM): -This document is similar to offer documents in
the case of issue of shares. It contains all 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 finalise a trust deed with the trustees to the issue.
6. Filing
of trust Deed: -The
trust deed must be filled with the ROC within the prescribed time limit.
7. Pricing
of the Issue: -the company takes a decision regarding pricing of the issues.
