Private
Placement:

“Private
placement” means 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 a private placement offer letter and which satisfies
the conditions specified.1

Private
Placement helps to raise the capital more quickly than a public issue. Generally
due to mandatory and non-mandatory expenses, the primary market can be
expensive. This is the reason why some companies cannot afford a public issue
and choose to use private placement.

Investors
involved in private placements can include large banks, mutual funds, insurance
companies and pension funds. It is a different from a public issue. In private
placement the securities are made available for sale on the open market to any
type of investor.

A
company making an offer or invitation under this section shall allot its
securities within sixty days from the date of receipt of the application money
for such securities and if the company is not able to allot the securities
within that period, it shall repay the application money to the subscribers
within fifteen days from the date of completion of sixty days and if the
company fails to repay the application money within the aforesaid period, it
shall be liable to repay that money with interest at the rate of twelve per
cent. per annum from the expiry of the sixtieth day.2

There are number of
benefit in capital raising through Private placement. It has minimal regulatory
requirements and standards that it must abide by. Private Placement is a method
of capital raising that does not have to be registered with the Securities and
Exchange Commission (SEC) which made it easy as comparative to other forms of
fund raising. Generally Private Placement investors consists of a small pool of
entities and individuals. Also, the investment does not require a prospectus
and in many cases, detailed financial information is not disclosed.3

 

1
Section 42 (2) of the Companies
Act, 2013

2
Section 42 (6) of the Companies
Act, 2013

3
Yogesh Malhan, Mondaq, Private
Placement under Companies Act, 2013, 9 April 2017.

 

Financial Institution:

In recent years, the
government has set up a number of special financial institutions in the country
to provide long term finance to business enterprises because the role of
commercial banks in the field of long term finance to industry has been
negligible. The IFCI, IDBI, ICICI, SFCs are the main among such financial institutions.
Now, these institutions have become major source of finance. They provide
finance both in form of equity and debt. These institutions provide both direct
and indirect loans. These days these institutions are not simply financial
institutions rather they also provide with promotional, technical and
managerial services.

 The possibilities of getting finance in these
institutions are generally high, especially for new companies who find it
difficulty in to raise finance from the public. Also the rate of interest and
payment procedures are convenient and economical in these institutions. The
procedures of repayment of loans are made in easy instalments to deserving
concerns. Some institutions also provide with expert advice and guidance for
the successful planning and administration of projects.

 

America
Depository Receipts (ADR):

When
a company wants to raise its fund oversea like from America and an investor
from America wants to invest in India then they have to take help of ADRs. In
India many companies like HDFC bank, Infosys, Videocon D2H have raised there
fund through ADRs. All the paper works related to ADR in a company is performed
by Domestic Custodian which has a counter part or collaboration with a company
in USA.

The
Companies Act, 2013 talks about Global Depository, according to which, A
company may, after passing a special resolution in its general meeting, issue
depository receipts in any foreign country in such manner, and subject to such
conditions, as may be prescribed.4

The
depository receipts issued by a company in the USA are known as the America
Depository Receipts. ADRs are bought and sold in American markets like regular
stocks. ADR is similar to a GDR except that it can be issued only to American
citizens and can be listed and traded on a stock exchange of USA. These
receipts are any negotiable securities that represent securities of companies
that are foreign to the market on which the DR trades.5

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