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Preferential Allotment under Section 62(1)(c)

Reviewed by CA and CS Team, Patron Accounting LLP ICAI & ICSI Registered| 15+ Years Experience| Last Updated: Verify Credentials →

Service: End-to-end preferential allotment of shares to identified investors in a funding round.

Fees: Preferential allotment starting from INR 24,999 (Exl GST and Govt. Charges).

Requires: Special resolution, registered-valuer report and Section 42 private placement compliance.

Filings: MGT-14, PAS-4 offer letter, PAS-5 record and PAS-3 return of allotment.

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Preferential Allotment: Overview and Quick Summary

📌 TL;DR - Preferential Allotment Services at a Glance

A preferential allotment under Section 62(1)(c) of the Companies Act, 2013 issues shares to identified investors, who need not be existing shareholders, at a price set by a registered valuer. It needs a special resolution and must comply with the private placement conditions of Section 42, making it the standard route for a funding round.

Parameter	Detail
Governing Provisions	Section 62(1)(c) with Rule 13; Section 42 with Rule 14
Offered To	Identified persons, whether or not existing members
Approval	Special resolution in general meeting
Cost	Patron fee from INR 24,999 (Exl GST and Govt. Charges) plus MCA fees
Pricing	Registered-valuer report for unlisted; SEBI ICDR for listed
Key Filings	MGT-14, PAS-4, PAS-5, PAS-3 (15 days of allotment)
Time Limit	Allotment within 12 months of the special resolution

Preferential allotment services from Patron Accounting cover the special resolution, the registered-valuer report, the PAS-4 offer letter, allotment and the PAS-3 filing. It is the route founders use to bring new investors onto the cap table. Our team has supported 10,000+ businesses since 2009.

A preferential allotment is the funding-round route to identified investors and is distinct from a rights issue under Section 62(1)(a), which is offered pro rata to existing shareholders. Where a non-resident participates, the round also engages FDI compliance for pricing and reporting.

What Is a Preferential Allotment?

A preferential allotment under Section 62(1)(c) is an issue of shares or convertible securities to a select group of identified persons, who may or may not be existing shareholders, on a preferential basis at a price set by a registered valuer.

It is the common route for an equity funding round, because it lets a company bring specific investors onto the cap table. It needs shareholder approval by special resolution and must follow the private placement procedure under Section 42, including the PAS-4 offer letter and a separate bank account.

Key Terms for Preferential Allotment:

Preferential Offer: An issue to select persons on a preferential basis, excluding rights, bonus and ESOP issues.
Special Resolution: Shareholder approval needing at least a 75 percent majority of votes cast.
Registered Valuer: An IBBI-registered valuer whose report sets the minimum price for an unlisted company.
PAS-4: The private placement offer-cum-application letter, serially numbered and addressed to each identified person.
PAS-5: The record of the private placement offer maintained by the company.

Section 62(1)(c) Funding Round

When Is Preferential Allotment Used?

Preferential allotment is used when a company wants to bring in identified investors rather than offer shares pro rata to all members. It applies to companies raising a funding round or onboarding a strategic investor.

Identified investors: Shares go to specific persons named by the Board, who may include new outside investors.
Special resolution: Members must authorise the issue by special resolution, with the Rule 13 explanatory statement.
Valuation: The price for an unlisted company cannot be less than the registered-valuer report price.
Section 42 compliance: The private placement conditions apply, including the 200-person cap per security type per year and the separate bank account.
AOA and capital: The Articles must authorise the issue and the authorised capital must cover it.

Where a foreign investor participates, the round also engages FDI pricing and reporting, which our FDI compliance service handles.

Our Preferential Allotment Services

Service	What We Do
Round Structuring	We help structure the round, the instrument and the investor list, and confirm AOA authorisation and authorised capital.
Valuation Coordination	We coordinate the registered-valuer report so the issue price meets the Rule 13 and Rule 11UA requirements.
Special Resolution and MGT-14	We draft the notice, the Rule 13 explanatory statement and the special resolution, and file MGT-14 within 30 days.
PAS-4 Offer and PAS-5 Record	We prepare the PAS-4 offer-cum-application letter for each investor and maintain the PAS-5 record.
Allotment and PAS-3	We manage the separate bank account, the allotment Board meeting and the PAS-3 filing within 15 days of allotment.
FDI and Cap Table Support	Where a non-resident invests, we handle the FDI pricing and reporting, and update the cap table and registers.

Our Process

Preferential Allotment Process: Step by Step

How Patron runs a preferential allotment under Section 62(1)(c), from structuring and valuation through the special resolution, PAS-4 offer, allotment and PAS-3 filing.

Step 1

Structure and Check

Fix the round, confirm AOA authorisation and that the authorised capital covers the issue.

AOA authorised Capital covers

Structure 01

Step 2

Obtain the Valuation

Get the registered-valuer report fixing the minimum price for the unlisted company.

Registered valuer Minimum price

Valuation 02

Step 3

Board and Special Resolution

Hold the Board meeting, then the general meeting to pass the special resolution with the Rule 13 statement.

Special resolution Rule 13 statement

Resolve 03

Step 4

File MGT-14

File MGT-14 with the ROC within 30 days of the special resolution.

Within 30 days ROC filed

MGT-14 04

Step 5

Issue PAS-4 and Collect Funds

Send the PAS-4 offer letter to identified investors and receive funds in a separate bank account.

PAS-4 offer Separate account

PAS-4 05

Step 6

Allot the Shares

Hold the allotment Board meeting within 60 days of receipt of money.

Within 60 days Board allots

Allot 06

Step 7

File PAS-3 and Issue Certificates

File PAS-3 within 15 days of allotment, issue certificates within two months and update the registers.

PAS-3 in 15 days Certificates

PAS-3 07

Documents Required for a Preferential Allotment

Capital structure and authorised capital details.
Articles of Association and shareholder register.
Registered-valuer report for the issue price.
Special resolution, Rule 13 explanatory statement and PAS-4.
List of allottees and investor KYC.
Valid DSC of the signatory for ROC filings.

Need the full checklist? We share a ready preferential allotment checklist when you engage us.

Common Preferential Allotment Challenges and Solutions

Challenge	Impact	How Patron Accounting Solves It
Pricing below the valuation	The issue price for an unlisted company cannot be below the registered-valuer price. We align the round price with the valuation report.
Missing the 12-month window	Allotment must complete within 12 months of the special resolution. We track the deadline and pass a fresh resolution if a round extends beyond it.
Section 42 breaches	Using funds before PAS-3, exceeding the 200-person cap or skipping the separate account can turn the issue into a deemed public offer. We keep every Section 42 condition intact.
Foreign investor pricing	A non-resident investor brings FDI pricing and reporting. We handle the FEMA side so the round stays compliant.

Preferential Allotment Fees

Fee Component	Amount
Patron Accounting Professional Fees	Starting from INR 24,999 (Exl GST and Govt. Charges)
What it covers	Structuring, special resolution, PAS-4 offer, allotment and the PAS-3 filing
Registered-valuer fee	Charged on actual basis
SH-7 capital increase and FDI filings	Charged on actual basis where applicable

All fees and charges listed are indicative only and do not constitute a binding offer. Final amounts may vary depending on the volume of work and the complexity involved.

The registered-valuer fee, any SH-7 increase in authorised capital, and FDI filings for non-resident investors are charged on an actual basis. Contact us for a detailed quote.

Get a free Preferential Allotment consultation - Call +91 945 945 6700 or WhatsApp us. No-obligation assessment.

How Long Does a Preferential Allotment Take?

Stage	Estimated Timeline
Overall	Usually a few weeks, driven by valuation, GM notice and the investor process
MGT-14	Within 30 days of the special resolution
Allotment	Within 60 days of receipt of money
PAS-3	Within 15 days of allotment
Whole allotment window	Within 12 months of the special resolution

A preferential allotment usually takes a few weeks, driven by the valuation, the general meeting notice and the investor process. After the special resolution, MGT-14 is filed within 30 days, allotment follows within 60 days of receipt of money, and PAS-3 within 15 days of allotment. The whole allotment must complete within 12 months of the resolution. We sequence each step so the windows are met.

Key Benefits

Why Choose Professional Preferential Allotment Support

Round Structured for Investors

The funding round is structured to bring in identified investors, with the instrument, AOA authorisation and authorised capital confirmed up front.

Valuation and PAS-4 Handled

The registered-valuer report, the special resolution and the PAS-4 offer-cum-application letter are handled correctly so the price and process stand up.

Section 42 Conditions Intact

Every private placement condition is kept intact - PAS-4 to identified persons, the separate bank account and the 200-person cap - so the issue is not a deemed public offer.

PAS-3 and Windows Met

PAS-3 is filed within 15 days, allotment within 60 days of receipt of money, and the whole allotment within the 12-month window.

FDI Side Covered

Where a non-resident invests, the FDI pricing and reporting under FEMA are handled alongside the company-law steps.

Handled by Qualified CAs and CSs

The funding round is run end to end by qualified Chartered Accountants and Company Secretaries.

Trusted by Businesses Across India

10,000+ Businesses Served | 4.9 Google Rating | 50,000+ Documents Filed | 15+ Years

"Patron ran our seed round as a preferential allotment, from the valuation and special resolution to PAS-4 and PAS-3. Investors were impressed." - Founder, technology startup, Bengaluru.

"We onboarded a strategic investor through a preferential allotment. Patron handled the valuation and the FDI reporting end to end." - Director, manufacturing company, Pune.

Trusted by leading brands including Hyundai, Asian Paints and Bridgestone for accounting and compliance support.

With offices in Pune, Mumbai, Delhi, and Gurugram, Patron Accounting serves businesses across India - both in-person and remotely.

Preferential Allotment Compared with a Rights Issue

Factor	Preferential Allotment (62(1)(c))	Rights Issue (62(1)(a))
Offered to	Identified persons, may be outsiders	Existing shareholders, pro rata
Resolution	Special resolution	Board resolution
Valuer report	Mandatory for unlisted companies	Not mandatory
Best for	Funding round, new investors	Raising capital without dilution

Related Share Capital and Funding Services

A preferential allotment connects with valuation, FDI and other share capital actions, and sits alongside a rights issue under Section 62(1)(a) as the other main route to raise equity. Patron handles the linked work too.

Issue of Shares for other modes of issuing shares.
FDI Compliance for funding rounds with non-resident investors.
Change in Authorised Capital for the SH-7 increase before the round.
Transfer of Shares for secondary changes in shareholding.
Private Limited Company Compliance for ongoing annual compliance.

Legal and Compliance Framework

Governing provisions: Section 62(1)(c) of the Companies Act, 2013 read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, together with Section 42 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, govern a preferential allotment.

Approval and pricing: The issue requires a special resolution with the Rule 13 explanatory statement, and for an unlisted company the price cannot be less than that set by a registered valuer under Rule 13 read with the valuation provisions.

Private placement conditions: Section 42 requires the PAS-4 offer to identified persons, a separate bank account, the 200-person cap per security type per year and PAS-3 before the funds are used.

Time limits: Allotment is within 60 days of receipt of money, PAS-3 within 15 days of allotment, and the whole allotment within 12 months of the special resolution, failing which a fresh resolution is needed.

Refer to the MCA portal for forms and to Section 62 on IndiaCode for the bare provision.

What is a preferential allotment under Section 62(1)(c)?

A preferential allotment under Section 62(1)(c) of the Companies Act, 2013 is an issue of shares or convertible securities to a select group of identified persons, who may or may not be existing shareholders, on a preferential basis. It requires a special resolution and must comply with the private placement conditions of Section 42, and it is the usual route for a funding round.

Is a valuation report mandatory for a preferential allotment?

Yes, for an unlisted company. The issue price cannot be less than the price determined by a registered valuer under Rule 13, read with the valuation rules. This protects existing shareholders from a below-value issue. A listed company instead follows the SEBI ICDR pricing formula and does not need a registered-valuer report.

What resolution is needed for a preferential allotment?

A preferential allotment requires a special resolution passed in a general meeting, with at least a 75 percent majority of the votes cast, accompanied by the explanatory statement prescribed under Rule 13. This is a key difference from a rights issue, which can be done by a Board resolution without a special resolution or a valuer report.

What forms are filed for a preferential allotment?

The main filings are MGT-14 for the special resolution within 30 days, the PAS-4 offer-cum-application letter to each investor, the PAS-5 record of the offer, and PAS-3, the return of allotment, within 15 days of allotment. Where the authorised capital must be increased first, Form SH-7 is filed before the allotment.

How is a preferential allotment different from a rights issue?

A preferential allotment is made to identified persons, who may be new investors, and needs a special resolution and a registered-valuer report for unlisted companies. A rights issue under Section 62(1)(a) is offered pro rata to existing shareholders, needs only a Board resolution and no mandatory valuer report. Preferential allotment suits funding rounds; a rights issue suits raising capital without dilution.

What are the Section 42 conditions for a preferential allotment?

Because Section 42 applies, the offer must be made to identified persons in PAS-4, the money must be kept in a separate bank account and not used until PAS-3 is filed, and the offer must stay within the cap of 200 persons per kind of security in a financial year. Breaching these conditions can turn the issue into a deemed public offer with penalties.

How long does a company have to complete the allotment?

The allotment must be completed within twelve months from the date of passing the special resolution. If it is not completed within that period, the company must pass another special resolution to complete the allotment thereafter. Within that, the shares are allotted within 60 days of receipt of money and PAS-3 is filed within 15 days of allotment.

Can a preferential allotment be made to a foreign investor?

Yes. A non-resident can be an identified investor in a preferential allotment, but the round then also engages the FDI pricing and reporting rules under FEMA. The issue price must meet both the registered-valuer requirement and the FDI pricing guidelines, and the prescribed FDI reporting must be filed alongside the company law steps.

Preferential allotment kya hota hai?

Preferential allotment me company identified investors ko special resolution aur valuation report ke saath shares issue karti hai.

Funding round me valuation report kab chahiye?

Unlisted company me preferential allotment ke liye registered valuer ki report zaroori hoti hai, jiske niche price nahi ho sakti.

Quick Answers

Offered to whom? Identified investors, who may be outsiders.

Approval? Special resolution in general meeting.

Valuer report? Mandatory for unlisted companies.

Key filing? PAS-3 within 15 days of allotment.

Why Get It Right

A funding round leaves no room for error. The valuation, special resolution, PAS-4 offer and the separate bank account must all be in place, and the allotment must complete within 12 months. A Section 42 slip can turn the round into a deemed public offer. Getting the structure right protects the round and the investors’ confidence.

Structure your round - Call +91 945 945 6700 or WhatsApp us. We respond within 2 hours.

Structure Your Funding Round with Patron Accounting

A preferential allotment under Section 62(1)(c) brings identified investors onto the cap table through a special resolution, a registered-valuer price and the Section 42 private placement procedure, with PAS-4, PAS-5 and PAS-3 filings and a 12-month allotment window.

Getting the valuation, resolution and private placement conditions right is what keeps a funding round clean. Patron Accounting, with qualified CAs and CSs and offices in Pune, Mumbai, Delhi and Gurugram, runs the full preferential allotment so your round closes smoothly.

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Content Created: 3 June 2026 | Last Updated: | Next Review: 4 September 2026 | Reviewed By: CA & CS Team, Patron Accounting LLP

This page is reviewed at least yearly and updated whenever Section 62(1)(c), Rule 13, Section 42, Rule 14, the Rule 11UA / registered-valuer pricing, the 200-person cap, the 60-day / 15-day / 12-month windows, the Rule 9B demat rule, or the FDI pricing and reporting rules change. Freshness Tier 1.

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