PP OF SHARES-84639e21



A private placement is a mode of raising of capital that involves the sale of securities to a relatively small number of selected investors.

A private placement is different from a public issue in which securities are made available for sale on the open market to any type of investor.

As per the definition under Explanation II to Sub Section 1 of Section 42 of the Companies Act, 2013 Private Placement means any offer of securities or invitation to subscribe securities to a select group of persons by a Company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.

Private Placement is governed by Section 42 of the Companies Act, 2013. As per Section 42 of the Companies Act, 2013 the maximum number of persons to which allotment can be done in a year shall not exceed 200 (Excluding Qualified Institutional Buyers and Employees who have been given securities under ESOP Scheme) in a financial year. If the same exceeds the prescribed limit then in will be deemed to be a public issue and the Company has to follow the procedure of Public issue.

As per the present scenario, if a Company, listed or unlisted, makes an offer of Securities to more than 200 persons during a year, whether it receives money or not, to any person whether in India or abroad and intends to get its Securities listed on a recognized stock exchange whether in India or abroad, shall be deemed to be a Public issue and the Company has to Comply with the provisions of Public issue.


  1. Firstly If a Company planning to make Private Placement has to first pass a special resolution (MGT-14) in the Extra General Meeting of the Company.

However, in case of Non Convertible Debentures(NCD) it will be sufficient if the Company passes a special resolution once in a year for all the Private Placements to be made by the for the NCD during the year.[Rule 14(2)].

  1. Thirdly, the Company has to issue a Private Placement letter of offer to the Identified persons by the Board to whom the allotment is to be made.[Companies Amendment Act, 2017].

However, it is to be noted that the Private Placement letter of offer shall not contain Right to Renunciation. [ Companies Amendment Act, 2017].

The Company also has to keep the records of the same and file the details with the ROC within 30 days from the date of issue of Private Placement letter of offer.[Rule 14(3)].

  1. Once the Company receives the allotment money, the Company shall allot the Securities within 60 days and if it fails to do so then refund the money within the next 15 days. If the Company fails to do so then interest @12% will be charged from the expiry of 60th day.
  2. The Company has to file return of allotment within 15 days of allotment in Form PAS-3 .Company cannot utilize the Application money until it has filed Return of allotment with the ROC(COMPANIES AMENDMENT ACT 2017). 


Following points are to be noted

  1. The Application money to be received shall be either through Cheque, Demand Draft or other banking channels except cash. [Section 42(5)]
  2. The minimum application size shall not be less than Rupees Twenty Thousand per person.
  3. Private Placement shall not be done unless any previous offer or invitation has been completed or withdrawn or abandoned by the Company. [Section 42(3)].
  4. The Company shall not advertise about the Private Placement to the public.
  5. If a Company makes contravenes the provisions of this Section, then the Company, Promoters and its Directors shall be liable for a penalty which may extend to the amount involved in the contravention or rupees two crores, whichever is higher. Further the Company also has to refund all monies to subscribers within 30 days of the order.
  6. Restriction of 200 is for each kind of a Security .


Who can issue private placement?

A public company or private company can issue shares on private placement basis.

Maximum number of person to whom private placement can be made

Private placement can be made to maximum 50 persons or higher number prescribed in a financial year, excluding (a) Qualified Institutional Buyer (QIB)(b) employees under stock option scheme under section 62(1)(b) of Companies Act 2013.

Maximum limit for making offer for Private placement:-

Offer or invitation can be made to not more than two hundred persons in the aggregate in a financial year, excluding offer to QIB and Employees stock option. This restriction would be reckoned individually for each kind of security that is equity share, preference share or debenture [i.e. 200 for equity shares, 200 for preference shares and 200 for debentures]. However, unless allotment with respect to one kind of security is completed, another kind of security shall not be issued.

 For example, if equity shares are issued first, preference shares or debentures cannot be issued unless allotment of equity shares is completed. 

This restriction does not apply to issues by NBFC registered with RBI and housing finance companies registered with NHB (National Housing Bank). If RBI or NHB has not specified similar regulation, the provision of Companies Act shall apply.

What is the time limit for making allotment?

Allotment must be made within 60 days. If not made within 60 days, amount should be refunded within 15 days. Otherwise, interest @ 12% will be payable. The money shall be kept in a separate bank account, either for allotment or for repayment.

The offer shall be made to specific persons by name and complete information and record of such offer shall be filed with ROC within 30 days of circulation of private placement offer.

No advertisement through media, marketing or distribution channels or agents shall be made of such offer. Return of allotment with complete details of security holders shall be filed with Registrar.

What is the minimum value of offer?

 The value of such offer or invitation per person shall be with an investment size of not less than Rs 20,000 of face value of the securities. This restriction does not apply to issues by NBFC registered with RBI and housing finance companies registered with NHB (National Housing Bank). If RBI or NHB has not specified similar regulation, the provision of Companies Act shall apply.

Payment only from bank account of person making application:-

The payment for subscription to securities shall be made from the bank account of the person subscribing to such securities only. The company shall keep the record of the Bank account from where such payments for subscriptions have been received. Monies payable on subscription to securities to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application – Rule 14(2)(d) of Companies prospectus and allotment rules 2014.

Record of private placement 

The company shall maintain a complete record of private placement offers in Form PAS.5.

 A copy of such record along with the private placement offer letter in Form PAS.4 shall be filed with the Registrar with prescribed fees, within 30 days from date of the private placement offer letter.

 If the company is listed, copy of such record shall also be submitted to SEBI, within 30 days from date of the private placement offer letter – Rule 14(3) of Companies (Prospectus and Allotment of Securities) Rules, 2014.

Return of allotment 

A return of allotment of securities under section 42 (private placement) shall be filed with the Registrar within 30 of allotment in Form PAS.3 with fee. The return should be filed along with a complete list of all security holders containing – 

(i) the full name, address, Permanent Account Number and E-mail ID of such security holder 

(ii) the class of security held 

(iii) the date of allotment of security 

(iv) the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash.

Pre-certification of form

The PAS.3 form filed by company (other than OPC and small company) shall be pre-certified by practicing CA, CMA or CS. (form filed by OPC or small company is not required to be certified by practicing CA, CMA or CS).


Section 42(1) (c) of Companies Act 2013

  1. Check Provision in the Articles of association regarding Private Placement of shares.
  1. Call Board Meeting:
  • To Prepare Offer Letter that is PAS-4
  • Make Proposal for Private Placement
  • Prepare list of persons to whom option will be given
  • Call EGM
  1. Call EGM:
  • Pass SR– will be valid for 12 month
  • If not completed Private Placement in 12 Months pass another Special Resolution.
  • Approve Draft Offer Letter (PAS-4)by Special Resolution.
  1. File MGT-14 with ROC Attachments: – Notice of EGM – CTC of SR – Minutes
  2. Issue offer letter in PAS-4 within 30 days of record of name of persons:
  • Application form serially numbered
  • Address to the persons to whom the offer is made
  1. Prepare complete record of Private Placement in PAS-5
  2. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
  3. Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
  4. Called BM for allotment of shares
  5. File PAS-3 with Roc within 30 days if Allotment. Attachments: – List of Allottees – BR for allotment of share
  6. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
  7. Issue Share Certificates.

NOTE:  An offer can be made under a Private Placement Offer Letter to not more than 200 people. Not just the limitation of allotment to 200 people but even an invitation to subscribe cannot be made to more than 200 people. The 200 people limit excludes Qualified Institutional Buyers and Employees and the limit of 200 people is calculated individually for each kind of security. Obviously, there cannot be a public announcement of such offers.

  • The application form has to be numbered and addressed specifically to the person to whom the offer is made along with the Offer Letter. Allotments can be made only to such persons
  • The value of the Offer per person shall not be less than INR 20,000 of ‘face value’ of securities. The payment for subscription should be through the bank account of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received. No cash transaction is permitted. The money so received shall be kept in a separate bank account of the company and utilised only for allotment (or repayment).
  • The price of the security has to be justified and the inference is that, it requires a valuation report by a Registered Valuer (can be a company secretary, chartered accountant or a cost accountant)

Non-compliance can lead to a penalty of INR 2 crores or the amount involved in the offer, whichever is higher.


The Author Can be Reached at saxenatanuj5@gmail.com; 9140389470, 8853774256

CS Tanuj Saxena

is a Qualified Company Secretary from Lucknow having a rich and Core expertise in Secretarial compliances of Companies, Nclt matters and Corporate Litigation matters.