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What do you mean by Private Placement of Shares (Class 12)
When a company raises the capital by issuing shares to promoters, relative and friends but does not offer the shares to the general public is called the private placement of shares.
Section 42 of the Companies Act, 2013 empowered a company to issue shares privately to its promoters, friends, and relatives.
The following rules are applicable to it.
- Shares are not offered to the public and the company does not issue a prospectus.
- Instead of issuing a prospectus, the promoters are required to prepare a draft prospectus known as a ‘Statement in Lieu of Prospectus and must file it with the Registrar at least 3 days before the first allotment of either shares or debentures.
- In the case of a private placement of shares, the allottees will not sell their shares for a minimum period of three years from the date of allotment. This period is called the lock-in period.