Private placement is one of the most common ways an unlisted company raises capital in India. Governed by Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, it lets a company issue shares, debentures or other securities to a small, pre-identified set of investors without approaching the public.
What private placement means
Instead of a public offer, the company sends a written offer only to persons it has already identified and named by board resolution. Because there is no public solicitation, the process sits outside prospectus requirements but is tightly controlled to prevent misuse. A company can offer securities to a maximum of 200 persons in a financial year (counted separately for each kind of security), excluding qualified institutional buyers (QIBs) and employees holding shares under an ESOP scheme. Crossing 200 turns the issue into a deemed public offer with serious consequences.
Key documents and forms
The paperwork is form-driven, and each form has a defined role and deadline.
| Form | Purpose | Timeline |
|---|---|---|
| MGT-14 | Filing the special resolution authorising the issue | Within 30 days of the resolution |
| PAS-4 | Private placement offer-cum-application letter to named investors | Issued before subscription; maintained internally |
| PAS-5 | Complete record of the private placement offer | Maintained by the company |
| PAS-3 | Return of allotment filed with the ROC | Within 15 days of allotment |
Since the 2018 amendment, PAS-4 and PAS-5 are no longer filed with the Registrar or SEBI, but the company must prepare and preserve them.
How the process works
- Obtain a valuation report from a registered valuer to fix the issue price.
- Pass a board resolution and a special resolution approving the offer and the list of identified investors.
- Issue the offer letter in Form PAS-4, serially numbered and addressed to each investor.
- Receive application money only through banking channels (cheque, demand draft or electronic transfer, never cash) into a separate bank account.
- Allot the securities and file Form PAS-3 with the ROC.
Timelines and restrictions
Allotment must be completed within 60 days of receiving application money. If it is not, the money must be refunded within the next 15 days; delay beyond that attracts interest at 12% per annum. The company cannot utilise the funds until PAS-3 is filed. Public advertisement, media coverage or any general solicitation is prohibited, and only the specifically identified persons may apply. A fresh offer cannot be made while an earlier one is still open or has not been withdrawn. There is no longer a prescribed minimum investment size per person — the earlier ₹20,000 face-value floor was removed by the 2018 amendment.
Common mistakes to avoid
- Accepting subscription money in cash or from a person not named in the board resolution.
- Using the funds before filing PAS-3 with the ROC.
- Renewing or making a second offer before closing the first.
- Skipping the registered-valuer report, which invites price-related scrutiny.
Contravening Section 42 can attract a penalty of up to the amount raised or ₹2 crore, whichever is lower, along with a direction to refund investors within 30 days, so precise, time-bound compliance is essential.