When a company seeks to raise capital, it can do so through various methods, including a Rights Issue or a Private Placement. While both methods involve the issuance of securities, they differ significantly in terms of regulations, process, and eligibility. Below are the main distinctions between the two under the Companies Act, 2013.

 1. Applicable Provisions

- Rights Issue: Governed by Section 62(1)(a) of the Companies Act, 2013, read with rules under the Companies (Share Capital and Debentures) Rules, 2014.

- Private Placement: Governed by Section 42 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

 2. Type of Security

- Rights Issue: Only shares (equity and preference) can be issued.

- Private Placement: Any type of security, including equity, preference shares, and debentures, can be issued.

 3. Eligible for Offer

- Rights Issue: The offer is made to existing equity shareholders in proportion to their current shareholding.

- Private Placement: The offer can be made to a selected group of investors or outsiders, other than the public. The maximum number of invitations in a year is capped at 200 persons.

 4. Approval Required

- Rights Issue: Requires only the approval of the Board of Directors via a Board Resolution.

- Private Placement: Requires approval from both the Board and Shareholders through a special resolution passed in a General Meeting.

 5. Offer Period

- Rights Issue: The offer period ranges from 15 to 30 days, but for private companies, this period can be reduced if 90% of shareholders consent.

- Private Placement: No specific minimum offer period, but the maximum period can extend up to 365 days.

 6. Valuation Report

- Rights Issue: A valuation report is not mandatory, except in cases where shares are issued to non-existing, non-resident shareholders.

- Private Placement: A valuation report is mandatory to ensure the shares are issued at a fair value.

 7. Separate Bank Account

- Rights Issue: No separate bank account is required.

- Private Placement: A separate bank account is required, and funds cannot be utilized until the PAS-3 form is filed.

 8. Renounce the Offer Letter Option

- Rights Issue: Shareholders have the right to renounce (transfer their right to another person), accept, or reject the offer.

- Private Placement: No right of renunciation is available.

 9. Forms to Be Filed

- Rights Issue: The form PAS-3 must be filed within 30 days from the date of allotment.

- Private Placement: Forms MGT-14 and PAS-3 must be filed within the respective deadlines after the special resolution and allotment.

 10. Mode of Receipt of Subscription Money

- Rights Issue: Subscription money can be received in cash or through banking channels.

- Private Placement: Subscription money can only be received through banking channels.

 11. Utilization of Funds

- Rights Issue: Funds can be utilized immediately after allotment, even before filing PAS-3.

- Private Placement: Funds can only be utilized after PAS-3 is filed.

 Conclusion

Both the Rights Issue and Private Placement are effective methods for raising funds, but they cater to different needs. Rights issues are more suitable for companies that want to involve existing shareholders and maintain control, while private placements allow businesses to raise funds from a select group of investors quickly. Companies must ensure they comply with the provisions of the Companies Act, 2013 and respective rules for each method.