Private placement: rules, PAS-4 and PAS-3 filing
A private placement is an offer of securities to a select group of up to 200 persons in a financial year under section 42, using a PAS-4 offer letter.
Short answer
A private placement is an offer or invitation to subscribe to a company's securities made to a select group of persons, not the public, under section 42 of the Companies Act, 2013. Offers in a financial year can go to at most 200 persons, excluding qualified institutional buyers and ESOP holders, through a private placement offer letter in Form PAS-4.
- Governed by
- Section 42 and rule 14
- Limit
- 200 persons per financial year
- Allotment
- Within 60 days of receiving money
- Return of allotment
- Form PAS-3 within 15 days
Process for a private placement
Most startup funding rounds are done as a private placement combined with a preferential allotment under section 62(1)(c). The usual steps, which must follow in the right order to avoid a defective issue, are these.
- Board approves the issue and the draft offer letter
- Shareholders pass a special resolution
- Valuation report from a registered valuer is obtained
- PAS-4 offer letter is sent to identified investors; offers are recorded in Form PAS-5
- Investors pay from their bank accounts into a separate bank account
- Board allots securities within 60 days
- Company files PAS-3 within 15 days of allotment
Key restrictions
No cash payments are allowed, and the company cannot use the money until allotment is made and PAS-3 is filed. If allotment is not made within 60 days, the money must be refunded within the next 15 days, failing which interest at 12% a year applies. The company cannot advertise the offer or use intermediaries to market it to the public. For foreign investors, the issue price must also meet the pricing rules under FEMA, and the allotment must be reported in Form FC-GPR.
Why it matters for startups
Breaching section 42 can make an issue a deemed public offer and attract heavy penalties, including refund of money. Keep the paperwork tight: correct sequence of approvals, a separate bank account, timely allotment and PAS-3 filing. Investors' counsel will check each step during the closing of a round.
Related services
Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is a valuation report required for a private placement?
Yes, when the issue is a preferential allotment, a registered valuer's report is needed to justify the price.
Can a private company do a private placement?
Yes. Private companies commonly raise funds through private placement and preferential allotment.
What happens if PAS-3 is filed late?
Additional fees and penalties apply, and the company may not use the funds until the return is filed.