This Blog is written by Mr. Nauman Ul Qadeer, Senior Manager Corporate Consultancy Services. Please read this blog and provide your valued comments.

Private Placement of Securities Rules 2017

This piece comprises of extracts of the provisions of the Private of Securities Rules 2017 and are being quoted / referred hereunder to give general idea to Private Companies to issue securities through Private Placement.

Application & Eligibility: –

These rules apply to companies proposing to offer their securities by way of Private Placement and shall not apply to securities issued by the Federal Government or Provincial Governments and private placement of securities by way a special purpose vehicle or body corporate specifically setup by the Federal Government or any Provincial Government for the purpose of private issue of securities, under any other law for the time being in force.

All Companies are eligible for Private Placement of Securities except a Single Member Company.

Contents of the Private Placement of Securities Rules 2017 can classified in three broad sections i.e. 1) Conditions for Issue of Further Share Capital through Private Placement, 2) Conditions for Issue of Debt Securities through Private Placement, and 3) Reporting to the Commission.

Definitions: –

Private Placement

Securities Act 2015 define “Private Placement” as an offer to sell or issue securities to a group of investors (whether individual or institutional) not more than the number prescribed and not using the print or electronic media for inviting offers.

Securities

Securities means any share, scrip, debenture, participation term certificate, modaraba certificate, musharika certificate, term finance certificate bond, pre-organization certificate or such other instrument.

Securities Act 2015 define “Securities” in Section 2 of Clause (lii) sub-clauses (a) to (i).

Extracts: –

1 – Conditions for Issue of Further Share Capital through Private Placement: –

In addition to compliance of the Provisions of Companies Act 2017, companies making private placement for Issue of Further Share Capital has to ensure compliance of the following conditions: –

  • Further issue of share capital through private placement shall only be made after due compliance of the provisions of Companies Act 2017 with respect to Further Issue of Shares.
  • The offer / invitation to subscribe to shares shall not be made to more than fifty persons.
  • The Company shall not release any public advertisement or utilize any media, marketing or distribution channels or agents to inform public at large about such offer.
  • The company shall not make more than two private placements in any financial year.
  • The shares shall be offered through information memorandum which contain minimum information as defined in schedule I of the Private Placement of Securities Rules 2017.
  • The Company shall ensure that proceeds of the issue are utilized in the form and manner as disclosed in the information memorandum.
  • All monies payable towards subscription of shares capital shall be paid through cheque or demand draft or other banking channel but not by cash.

2) – Conditions for Issue of Debt Securities through Private Placement: –

In addition to compliance of the Provisions of Companies Act 2017, companies making private placement for Issue of Debt Securities has to ensure compliance of the following conditions: –

  • Compliance of the Provisions of the Companies Act 2017 is required.
  • In-case company is issuing Convertible Securities Compliance of the Provision of Companies Act 2017 with respect to Further Issue of Shares shall be ensured. Further Conversion shall be in-accordance with the provision of Information Memorandum.
  • Debt securities are tradeable and transferable.
  • Company has arranged “Security” if required.
  • Trust Deed shall contain information as specified by the Commission.
  • In-case debt securities are Sukuk or Asset Backed Security, compliance of regulatory frameworks shall be ensured.

3) – Reporting to the Commission: –

In-case of Further Issue of Share Capital, Company shall report allotment through specified form in compliance of Companies Act 2017 & Companies (General Provisions and Form) Regulations 2018.

In-case of Debt Security, company shall within 30 days of closing of the subscription period, report the issue to the Commission on the Format as specified in Schedule – II to these rules, and so redemption status in the form and manner specified by the Commission.

 

Nauman Ul Qadeer