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Definition: Placement

The act of selling new securities to a small number of private investors rather general investing public is known as Placement. It can also be described as an act of transferring securities to a small group of investors.

The securities issued under Private Placements or Non Public Offerings do not have to be registered with the Securities and Exchange Commission, if the placements are offered under the Rules known as Regulation D. Private Placements typically consists of offers of common stock, preferred stocks, warrants, or promissory notes, bonds etc. The purchasers are usually Institutional investors such as Banks, Insurance Companies or Pension Funds. The buyers are usually large sophisticated investors. Public may not be aware of the Placement until it is completed. In India, Chapter III, Part II of the Companies Act, 2013 deals exclusively with Private Placements. Provisions for Private Placements apply only to the issue of “securities” and not “shares”. According to Section 42 of the Companies Act, 2013, all the monies payable towards subscription of securities by Private Placements shall be paid through demand drafts, or cheques or other banking channels but not by cash. All the securities need to be allotted within a period of 60 days of receipt of money by the companies. If not allotted within the prescribed period then application money is to be refunded within a period of 15 days from completion of 60 days time. If the Company contravenes the provisions specified in section 42, then its promoters and directors shall be liable for a penalty.

The Companies Act, 2013 has made the requirements for raising the funds by way of Private Placements more stringent so that it can bring transparency in the affairs of the Company and accountability of the directors.


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