Section 42 of CA 2013 : Section 42: Issue Of Shares On Private Placement Basis

Explanation using Example

Imagine a startup company, Tech Innovations Pvt. Ltd., is looking to raise additional funds to expand its operations. Instead of going for a public issue, which can be a lengthy and complex process, the company decides to issue shares through a private placement.

The Board of Directors identifies 40 high net-worth individuals (HNIs) and institutional investors who might be interested in investing in the company. They prepare a private placement offer document, which includes all the details about the offer, such as the number of shares, price per share, and the company's financials.

The offer is not made public and is only sent to these identified persons. Each investor is given an application form to fill out and is asked to send the subscription amount via banking channels. The company ensures to not exceed the limit of 50 persons in a financial year for private placements, as per the Companies Act, 2013.

After receiving the applications and funds, Tech Innovations Pvt. Ltd. allots the shares within 60 days and files the return of allotment with the Registrar of Companies (ROC) within the next 15 days. If the company had failed to allot the shares within 60 days, it would have had to refund the application money with interest.

By following the provisions of Section 42 of the Companies Act, 2013, Tech Innovations Pvt. Ltd. successfully raises the funds it needs without having to go through the public issue process.