Identified Persons
Also written Identified persons under private placement
The select group a company names to receive a private placement under Section 42 — capped at 50 allottees a year excluding QIBs and ESOP employees, with allotment within 60 days or a mandatory refund.
In plain language
A company does not have to sell shares to the public to raise money. It can offer them to a hand-picked group instead. The workbook calls this group Identified Persons.
Because the company itself chooses who gets the offer, the Companies Act limits how it can be done: how many people, how the money is collected, and what happens if the company cannot allot the shares.
How it works
Under Section 42 of the Companies Act, 2013, the number of Identified Persons in a financial year cannot exceed 50, or a higher prescribed number, and this cap excludes Qualified Institutional Buyers and employees receiving shares under an employee stock option scheme.
Each Identified Person applies with the subscription money, paid by cheque, demand draft or other banking channel — never cash. The company must record the name and address of every Identified Person, and it cannot make a fresh offer while an earlier one is still pending.
Application money is kept in a separate bank account and used only to adjust against allotment or to repay the applicant. The company must allot the shares within 60 days of receiving the money. Miss that, and it must refund the money within 15 days of the 60-day deadline expiring — and if it misses that too, the refund carries interest at 12% a year from the 61st day. No public advertisement of the offer is allowed.
A worked example
Trivandrum Robotics Pvt Ltd raises Rs 18 crore from 32 Identified Persons in a private placement, keeping well under the 50-allottee cap. Each investor pays by NEFT into the company's designated separate bank account on 10 March.
The company allots the shares on 28 April — 49 days later, inside the 60-day window. Had it instead failed to allot by 9 May (the 60th day), it would have had to refund the full Rs 18 crore by 24 May (15 days later). A further delay past 24 May would attract 12% annual interest on the unpaid amount — on Rs 18 crore, that is Rs 5.92 lakh per month of delay.
Why NISM asks about it
Chapter 8, section 8.1 (Private Placement of Shares). Expect the 50-allottee cap, what is excluded from it (QIBs, ESOP employees), the 60-day allotment window, the 15-day refund window and the 12% interest rate — five numbers in one short section, all separately tested.
Common exam traps
- The 50-allottee cap excludes QIBs and ESOP employees — a question that counts them in is testing the exclusion.
- 60 days to allot, then 15 more days to refund — two clocks, not one.
- 12% interest runs from the expiry of the 60-day period, not from the date the money was received.
- No cash applications, ever, and no public advertisement — either breach undermines the private character of the placement.
- A private placement by a listed company is called a preferential allotment, a distinct, separately regulated route with its own lock-in rules.
Check yourself
1.A private placement of shares is not regulated by SEBI or the Companies Act. True or false?
- a)False
- b)True
Show the answer
Answer: (a) False
Both regulate it, so the statement is false.
Under section 42 of the Companies Act, 2013, a company may make allotment of share through private placement subject to certain conditions.
And where the company is listed: since the company is listed and has public shareholders, it is required to meet the regulation in this regard of SEBI and the Companies Act.
What section 42 imposes. The offer goes only to select group of persons as identified by the company ("Identified Persons"), whose name and addresses must be recorded; number of allottees shall not exceed 50... in a financial year, excluding QIBs and ESOP employees; money comes by cheque or Demand Draft or other banking channels but not by cash; the company has to file details about the allotment to Registrar of Companies (RoC); allotment must occur within 60 days of receipt of application money; and the money sits in a separate bank account in a scheduled bank.
And publicity is prohibited outright: no company issuing securities under this section shall release any public advertisements or utilise any media to inform the public at large about such an issue.
On the SEBI side, a listed company's private placement is a preferential allotment of shares, needing a resolution... passed by the shareholders and carrying lock-ins of 18 months for the promoter group and 6 months for others, both from the date of trading approval.
What is lighter is the process, not the absence of law. The chapter explains that a public offer's requirements can be time-consuming, elaborate, and intended to protect the less informed investor, whereas a placement to better informed investors does not require... elaborate protection mechanisms.
Less elaborate is not unregulated.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- Issued capitalThe part of a company's authorised capital that has actually been issued to investors — promoters, the public or specified investors — counted at face value, whatever price the shares were sold at.
- Employee Stock OptionThe right, not the obligation, given to an employee to buy company shares at a fixed price after a minimum one-year vesting period — the RTA administers the grant; tax treatment is a separate topic.
- Preferential allotment lock-inThe mandatory holding period on shares from a preferential allotment by a listed company — 18 months for promoters and the promoter group, 6 months for everyone else, both from the date of trading approval.