Issue of debenture by pvt ltd company
This query is : Resolved
03 May 2012
I have following issues relating to issue of debenture by Pvt Ltd Company:-
1) Can a new pvt ltd company issue debentures?
2) As per sec 3(1)(iii) of Companies Act, 1956 a private company prohibit public issue of shares and debentures. In this case what is the meaning of "public"?
3) As per section 67(3) an offer will not be deemed to public offer if offer made to only 49 persons or less than 49. In this case can a company make distinct offering of securities with each such offering being made to less than 50 persons?
4)In above question no (3) what will be the meaning of "distinct offering of securities"?
1) Can a new pvt ltd company issue debentures?
2) As per sec 3(1)(iii) of Companies Act, 1956 a private company prohibit public issue of shares and debentures. In this case what is the meaning of "public"?
3) As per section 67(3) an offer will not be deemed to public offer if offer made to only 49 persons or less than 49. In this case can a company make distinct offering of securities with each such offering being made to less than 50 persons?
4)In above question no (3) what will be the meaning of "distinct offering of securities"?
03 May 2012
a) Under the Companies (Acceptance of Deposit) Rules, 1975 “any amount
raised by issue of debentures (including convertible debentures) secured by the
mortgage of any immovable property of the company and that the market value
of the immovable property secured is higher than the amount of debentures
issued” is not considered to be a DEPOSIT.
b) Under Section 3(1)(d) of the Act, a Private Company is prohibited from
accepting Deposit from persons other than its Directors, Members and their
relatives.
(c) Hence, the Private Company must issue Debentures only as a Secured
Debenture.
raised by issue of debentures (including convertible debentures) secured by the
mortgage of any immovable property of the company and that the market value
of the immovable property secured is higher than the amount of debentures
issued” is not considered to be a DEPOSIT.
b) Under Section 3(1)(d) of the Act, a Private Company is prohibited from
accepting Deposit from persons other than its Directors, Members and their
relatives.
(c) Hence, the Private Company must issue Debentures only as a Secured
Debenture.
02 August 2024
Let’s address your queries regarding the issuance of debentures by a Private Limited Company:
### 1. Can a new Pvt Ltd company issue debentures?
Yes, a new Private Limited Company can issue debentures. However, the issuance of debentures must comply with the provisions of the Companies Act, 2013. The company needs to ensure that the issuance aligns with the legal requirements, including approval from the board of directors and, if necessary, the shareholders.
### 2. As per Section 3(1)(iii) of Companies Act, 1956, a private company prohibits the public issue of shares and debentures. In this case, what is the meaning of "public"?
In the context of the Companies Act, 1956, "public" refers to the general public, meaning anyone or the public at large. A private company is restricted from issuing shares or debentures to the public and can only make such offers to a closed group of people, typically to its members, directors, or to a specific class of investors.
Under the Companies Act, 2013, which replaced the Companies Act, 1956, this restriction continues. A Private Limited Company cannot make a public offering of shares or debentures and must adhere to private placements.
### 3. As per Section 67(3), an offer will not be deemed a public offer if the offer is made to only 49 persons or less. In this case, can a company make distinct offerings of securities with each such offering being made to less than 50 persons?
Yes, a Private Limited Company can make multiple distinct offerings of securities, each to 49 persons or fewer, without being classified as a public offer. This provision allows private companies to raise funds through private placements in a manner that does not constitute a public offering, thus adhering to regulatory constraints.
### 4. In the above question no (3), what will be the meaning of "distinct offering of securities"?
"Distinct offering of securities" refers to separate and individual offers made to different groups or sets of investors, each involving fewer than 50 persons. Each distinct offering must be treated separately in terms of compliance with the provisions governing private placements.
In other words, each separate issuance or offer made to a distinct set of investors, without aggregating the numbers to exceed 50 persons in any single offering, is treated as distinct and compliant with the legal limits.
### Additional Considerations
- **Private Placement Process:** Ensure compliance with the private placement process as outlined in the Companies Act, 2013. This involves issuing a private placement offer letter, passing board and shareholder resolutions, and following the proper documentation and filing procedures.
- **Legal Advice:** Consulting with a legal or financial advisor can help ensure compliance with all regulations and provide guidance on the structure and documentation required for issuing debentures.
By following these guidelines and understanding the legal framework, a Private Limited Company can successfully issue debentures while remaining compliant with applicable laws and regulations.
### 1. Can a new Pvt Ltd company issue debentures?
Yes, a new Private Limited Company can issue debentures. However, the issuance of debentures must comply with the provisions of the Companies Act, 2013. The company needs to ensure that the issuance aligns with the legal requirements, including approval from the board of directors and, if necessary, the shareholders.
### 2. As per Section 3(1)(iii) of Companies Act, 1956, a private company prohibits the public issue of shares and debentures. In this case, what is the meaning of "public"?
In the context of the Companies Act, 1956, "public" refers to the general public, meaning anyone or the public at large. A private company is restricted from issuing shares or debentures to the public and can only make such offers to a closed group of people, typically to its members, directors, or to a specific class of investors.
Under the Companies Act, 2013, which replaced the Companies Act, 1956, this restriction continues. A Private Limited Company cannot make a public offering of shares or debentures and must adhere to private placements.
### 3. As per Section 67(3), an offer will not be deemed a public offer if the offer is made to only 49 persons or less. In this case, can a company make distinct offerings of securities with each such offering being made to less than 50 persons?
Yes, a Private Limited Company can make multiple distinct offerings of securities, each to 49 persons or fewer, without being classified as a public offer. This provision allows private companies to raise funds through private placements in a manner that does not constitute a public offering, thus adhering to regulatory constraints.
### 4. In the above question no (3), what will be the meaning of "distinct offering of securities"?
"Distinct offering of securities" refers to separate and individual offers made to different groups or sets of investors, each involving fewer than 50 persons. Each distinct offering must be treated separately in terms of compliance with the provisions governing private placements.
In other words, each separate issuance or offer made to a distinct set of investors, without aggregating the numbers to exceed 50 persons in any single offering, is treated as distinct and compliant with the legal limits.
### Additional Considerations
- **Private Placement Process:** Ensure compliance with the private placement process as outlined in the Companies Act, 2013. This involves issuing a private placement offer letter, passing board and shareholder resolutions, and following the proper documentation and filing procedures.
- **Legal Advice:** Consulting with a legal or financial advisor can help ensure compliance with all regulations and provide guidance on the structure and documentation required for issuing debentures.
By following these guidelines and understanding the legal framework, a Private Limited Company can successfully issue debentures while remaining compliant with applicable laws and regulations.
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