Public offer and Private Placement of Shares

The corporate world in the entire nation is growing to a large extent. Many new business ventures are coming up with unique ideas and trying to fit into the corporate world. The college dropouts in the management field are large and the young minds are coming up with unique ideas for doing business, also they are creating mind-blowing products for the country with the available resources. Unique ventures like ‘Chai Sutta Baar’ are developing their business in the country with their unique ideas. As the idea comes to the mind of one man and the establishment of business one needs huge capital investment.

If this fund is raised from a bank or other financial institution it costs huge for the companies, so companies generally avoid taking from these sources. They generally raise funds from other sources. This investment comes from the general public or from some pre-selected investors and institutions who have a large investment. Nowadays companies issue shares to raise money from the general public. They also raise some money in the form of private placement from pre-selected investors and institutions. In this way, money can be raised to generate investment.

Newly formed companies listed on the stock exchange and raise money through IPO (initial public offer). IPO is the first offer of shares to the general public by the listed companies. The general public buys these shares by opening a Demat account. The other method of raising money is private placement in which pre-decided investors like Rakesh Jhunjhunwala invest their money. Apart from that, some institutions are running their business efficiently.

DEFINITION OF PUBLIC OFFER

Public offer is defined in section 23 of the Companies Act 2013. A public offering is the sale of equity shares or other financial instruments such as bonds to the public in order to raise capital. The capital raised may be used for strategic investment, general expenses, technology development, and business expansion. The financial instruments offered to the public include equity stack, preference shares, and other assets. The offer is called a public offer when it is offered to more than 35 people.

It Is not generally offered to individuals separately. In this method, a prospectus is floated by the company which contains all the information regarding the issue of shares, like face value and the issue price of shares. The public who is interested in buying shares can fill out the application form at whatever price it is. Earlier it was done by dividing the face value into no. of parts, like the company calls some part of it on application, some on the allotment, and some on calls. But today the scenario is different and the rules are changed and the companies raise the full value in a single part. The public offer generally comes under the primary market, in which shares are first issued to the company when the company is formed.

 PRIVATE PLACEMENT OF SHARES

Private placement of shares is also defined in section 23 of the Companies Act 2013. A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than publicly on the open market. It is basically an alternative to an initial public offering for a company seeking to raise capital for expansion.

The private placement is done as there are minimal regulatory requirements and standards for a private placement even though, like an IPO, it involves the sale of securities. The sale does not even have to be registered with the U.S. Securities and Exchange Commission (SEC). The company is not required to provide a prospectus to potential investors and detailed financial information may not be disclosed. The sale of stock on public exchanges is regulated by the Securities Act of 1933, which was enacted after the market crash of 1929 to ensure that investors receive sufficient disclosure when they purchase securities. Regulation D of that act provides a registration exemption for private placement offerings. The same regulation allows an issuer to sell securities to a pre-selected group of investors that meet specified requirements. Instead of a prospectus, private placements are sold using a private placement memorandum (PPM) and cannot be broadly marketed to the general public. Generally, the buyer of private placement bond issues expects a higher rate of interest than they can earn on a publicly traded company. Because of the additional risk of not obtaining a credit rating, private placement buyers may not buy a bond unless it is secured by specific collateral.

CONCLUSION

So, the new businesses emerging in today’s environment are coming up with new ideas to generate money from either the primary market or from the private placement of shares. In the private placement of shares, companies are exempted from following procedures and other formalities.

REFERENCES

Section 23 of the Companies Act 2013

Securities exchange act of 1933

https://www.investopedia.com/terms/p/privateplacement.asp

https://cleartax.in/s/private-placement-section-42-companies-act-2013https://taxguru.in/company-law/issue-shares-private-placement-companies-act-2013.html

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