Private Placement explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A private placement is an offer of securities to a select group of identified persons rather than the public, and section 42 of the Companies Act, 2013 and rule 14 of the Prospectus and Allotment Rules turn it into a fixed sequence. Miss a step and the issue may be treated as a public offer. This guide reads the Act in the Ministry's consolidated text (last updated 29 July 2022) and the Rules as consolidated in the Ministry's e-book, consulted on 3 October 2026; later amendments should be checked.
Section 42 allows a private placement only to identified persons, with a prior special resolution for each offer (rule 14(1)), an offer in Form PAS-4, a record in Form PAS-5, subscription money by cheque, draft or banking channel from the subscriber's own account, a separate bank account in a scheduled bank, allotment within sixty days of receipt of the money, and a return of allotment in Form PAS-3 within fifteen days of allotment. Rule 14(2) limits offers to two hundred persons in a financial year, counted separately for each kind of security. An issue that breaks the limit is deemed a public offer (section 42(11)).
The flow in order
- Board meeting. The Board identifies the persons to be offered securities (section 42(2)), fixes the price and, where the price rests on a valuation, obtains the registered valuer's report (section 62(1)(c)). It approves the notice of the general meeting with the explanatory statement.
- Valuation. Rule 14(1)'s explanatory statement must give the name and address of the valuer who performed the valuation and the basis or justification for the price. If the issue is on a preferential basis under section 62(1)(c), rule 13 of the Share Capital Rules also requires the price to be based on a registered valuer's report for an unlisted company, and the issue must comply with section 42.
- Special resolution and filing. Under rule 14(1), the proposal must be approved beforehand by the shareholders by special resolution for each offer. The explanatory statement carries the particulars listed in rule 14(1)(a) to (f): date of the Board resolution, kind of securities and price, basis of the price, the valuer's name and address, amount to be raised and the material terms and purposes. The resolution is filed with the Registrar in Form MGT-14 (rule 24 of the Management and Administration Rules; section 117 gives thirty days). Rule 14(8) says the offer letter may be issued only after the relevant resolution has been filed.
- Offer in Form PAS-4 and record in PAS-5. Rule 14(3): the private placement offer cum application letter in Form PAS-4, serially numbered and addressed to the person named, sent in writing or electronically within thirty days of recording that person's name; no one else can apply on it. The offer carries no right of renunciation (section 42(3) proviso). The company keeps a complete record in Form PAS-5 (rule 14(4)).
- Money in. Section 42(4): the subscriber pays by cheque, demand draft or other banking channel, not cash. Rule 14(5): the payment comes from the subscriber's own bank account and the company keeps a record of that account; for joint holders it comes from the account of the first-named. Section 42(6) proviso: the application money goes to a separate bank account in a scheduled bank and may be used only to adjust against allotment or to repay if the company cannot allot.
- Allotment. Section 42(6): allot within sixty days of receiving the money; otherwise repay within fifteen days from the expiry of the sixty days, and after that with interest at twelve per cent per annum from the sixtieth day.
- Return of allotment. Section 42(8) and rule 14(6): file Form PAS-3 within fifteen days of allotment with a complete list of allottees (full name, address, Permanent Account Number and email ID, class of security, date, number, nominal value and amount paid, and consideration particulars where not cash). Section 42(4) proviso: the company may not use the money until the allotment is made and the return filed.
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Limits and conditions
- Select group. Section 42(2) says identified persons, whose number shall not exceed fifty "or such higher number as may be prescribed", in a financial year, excluding qualified institutional buyers and employees under a stock option scheme. Rule 14(2) prescribes two hundred persons in the aggregate in a financial year. Offers to qualified institutional buyers or to employees under section 62(1)(b) are not counted. The restriction is reckoned individually for each kind of security: equity, preference, debenture.
- No fresh offer until the allotments under an earlier offer are complete or the earlier offer is withdrawn or abandoned (section 42(5)); a company may make more than one issue to the class of identified persons prescribed, within the maximum number.
- No advertisement. Section 42(7) bars public advertisements and the use of media, marketing or distribution channels or agents to inform the public at large.
- Land-border countries. Rule 14(1)'s fifth proviso bars an offer to a body corporate incorporated in, or a national of, a country sharing a land border with India unless Government approval under the Non-debt Instruments Rules is obtained and attached.
- NBFCs and housing finance companies are outside rule 14(2) if they comply with the regulator's regulations (rule 14(7)).
- Debentures. Non-convertible debentures have their own provisos in rule 14(1): where the amount does not exceed the section 180(1)(c) limit, the Board resolution under section 179(3)(c) is adequate; above it, one previous special resolution a year for all such offers in the year. Secured debentures also meet rule 18 of the Share Capital Rules (maximum ten years, with the longer periods the proviso lists; a debenture trustee appointed before the offer and a trust deed within sixty days of allotment).
Penalties
Late return: the company, its promoters and directors are liable to a penalty of one thousand rupees for each day of default, up to twenty-five lakh rupees (section 42(9)). An offer or acceptance of money in contravention: penalty up to the amount raised or two crore rupees, whichever is lower, with refund of all money with interest within thirty days of the order (section 42(10)). An issue not complying with section 42(2) is deemed a public offer (section 42(11)).
Worked example (invented names)
Lotus Retail Private Limited plans to place 50,000 equity shares at Rs 100 each (Rs 50,00,000) with 12 investors. Its Board approves the offer on 5 April, valuation is obtained, the special resolution is passed and filed, and PAS-4 offers go out. Money of Rs 50,00,000 lands in the separate account on 10 May; the sixty-day allotment limit runs to 9 July. Allotment is made on 20 May, so the PAS-3 is due within fifteen days from 20 May, that is by 4 June, and the company can use the money only after filing. The 12 persons are well inside two hundred for equity.
Common mistakes
- Offering to more than two hundred persons for one kind of security in a year.
- Taking money from a joint account or a person other than the applicant.
- Using the money before the PAS-3 is filed.
- Issuing PAS-4 before the special resolution is filed.
- Making a fresh offer while an earlier offer's allotment is still open.
Need help with a private placement?
We can prepare the valuation timeline, resolutions, offer letters, records and the return so that each step in the sequence is met before the next begins. See our allotment of shares and PAS-3 service.
Key takeaways
- Special resolution for each offer, then PAS-4 and PAS-5.
- Two hundred persons a financial year, counted per kind of security.
- Subscription from the subscriber's own account into a separate scheduled-bank account.
- Allot within sixty days; return in PAS-3 within fifteen days.
- Do not use the money before allotment and the return.
Read next
- Private Placement Under Section 42
- PAS-4: Private Placement Offer Letter Guide
- Funding Options for a Private Limited Company
- Issue of Shares for Consideration Other Than Cash
Disclaimer: Based on the Companies Act, 2013 in the Ministry of Corporate Affairs consolidated text (last updated 29 July 2022), the Rules as consolidated in the Ministry's e-book and the other official texts named in this article, as consulted on 3 October 2026. Later amendments, notifications, circulars, forms and fees should be checked. Formats are general drafts to be adapted to the company's articles and facts. This article is general information, not legal advice; check the official text before acting.