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Private Placement of Shares under Section 42

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

Service: End-to-end private placement of securities to identified investors for a funding round.

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

Framework: PAS-4 offer letter, PAS-5 record, 200-investor cap and a separate bank account.

Filings: Special resolution, MGT-14 and PAS-3 within 15 days of allotment.

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Private Placement: Overview and Quick Summary

📌 TL;DR - Private Placement Services at a Glance

Private placement under Section 42 of the Companies Act, 2013 raises capital by offering securities to a select group of identified persons, capped at 200 per financial year per kind of security, through a PAS-4 offer letter. The company maintains a PAS-5 record, keeps the money in a separate bank account, and cannot use it until the PAS-3 return of allotment is filed.

Parameter	Detail
Governing Provisions	Section 42, Companies Act, 2013 with Rule 14
Offered To	Identified persons, max 200 per FY per kind of security
Approval	Special resolution per offer
Cost	Patron fee from INR 24,999 (Exl GST and Govt. Charges) plus MCA fees
Key Documents	PAS-4 offer letter, PAS-5 record (maintained, not ROC-filed)
Money and Filing	Separate bank account; PAS-3 within 15 days of allotment
Non-Compliance	Deemed public offer; penalty up to amount raised or Rs 2 crore

Private placement services from Patron Accounting cover the special resolution, the PAS-4 offer-cum-application letter, the PAS-5 record, the separate account, allotment and the PAS-3 filing. It is the framework behind Series A, B and C funding rounds. Our team has supported 10,000+ businesses since 2009.

Private placement under Section 42 is the framework that underpins fund raises across security types; a priced equity round on a preferential basis under Section 62(1)(c) must itself comply with these Section 42 conditions. Where a non-resident invests, the round also engages FDI compliance for pricing and reporting.

What Is a Private Placement?

A private placement under Section 42 is an offer of securities, made by a company to a select group of identified persons, that is not a public offer. The offer is made through a PAS-4 offer-cum-application letter rather than a prospectus.

It is the standard framework for raising a funding round, since it lets a company issue equity, preference shares, debentures or convertible securities privately. Strict conditions on the investor count, the offer letter, the separate bank account and the timelines protect investors and keep the issue out of public-offer territory.

Key Terms for Private Placement:

Identified Persons: The named investors recorded by the Board before the offer; only they can be allotted.
PAS-4: The private placement offer-cum-application letter, serially numbered and addressed to each investor.
PAS-5: The record of private placement offers maintained by the company.
200-Person Cap: The maximum identified persons per financial year for each kind of security, excluding QIBs and ESOP.
Separate Bank Account: A dedicated scheduled-bank account where subscription money is held until PAS-3 is filed.

Section 42 PAS-4 / PAS-5

When Is Private Placement Used?

Private placement is used whenever a company raises funds from identified investors rather than the public, across equity and debt instruments. It is the backbone of priced equity rounds and of debenture issues.

Funding rounds: Series A, B and C equity rounds to identified investors run through the Section 42 framework.
Multiple instruments: Equity shares, preference shares, debentures and convertible securities can all be privately placed.
Investor cap: Up to 200 identified persons per financial year for each kind of security, excluding QIBs and ESOP.
Special resolution: Each offer needs a special resolution, except certain NCD issues within the Section 180(1)(c) limits.
No renunciation: The right to subscribe cannot be renounced; only identified persons can be allotted.

A priced equity round usually combines this framework with a preferential basis under Section 62(1)(c), which we also handle as a dedicated preferential allotment engagement.

Our Private Placement Services

Service	What We Do
Round and Instrument Structuring	We help fix the instrument, the investor list and the offer terms, and confirm AOA authorisation and authorised capital.
Special Resolution and MGT-14	We draft the notice, explanatory statement and special resolution, and file MGT-14 within 30 days.
PAS-4 Offer and PAS-5 Record	We prepare the serially numbered PAS-4 offer-cum-application letter for each investor and maintain the PAS-5 record.
Separate Account and Funds	We set up the separate scheduled-bank account and ensure the money is used only after PAS-3 is filed.
Allotment and PAS-3	We convene the allotment Board meeting within the timeline and file PAS-3 within 15 days of allotment.
Valuation and FDI Support	Where a priced equity issue or a non-resident investor is involved, we arrange the valuation and the FDI reporting.

Our Process

Private Placement Process: Step by Step

How Patron runs a private placement under Section 42, from structuring and the special resolution through the PAS-4 offer, the separate account, allotment and the PAS-3 filing.

Step 1

Structure and Approve

Identify the investors and instrument, confirm AOA and capital, and hold the Board meeting.

AOA + capital Board meeting

Structure 01

Step 2

Pass the Special Resolution

Hold the general meeting to pass the special resolution with the explanatory statement.

Special resolution Explanatory stmt

Resolve 02

Step 3

File MGT-14

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

Within 30 days ROC filed

MGT-14 03

Step 4

Issue PAS-4 and Record PAS-5

Send the PAS-4 offer-cum-application letter to identified persons and maintain the PAS-5 record.

PAS-4 offer PAS-5 record

PAS-4 04

Step 5

Collect Funds in a Separate Account

Receive subscription money through banking channels into the separate scheduled-bank account.

Banking channel Separate account

Funds 05

Step 6

Allot the Securities

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

Within 60 days Board allots

Allot 06

Step 7

File PAS-3

File PAS-3 within 15 days of allotment, then use the funds, issue certificates and update registers.

PAS-3 in 15 days Funds unlocked

PAS-3 07

Documents Required for a Private Placement

Capital structure and authorised capital details.
Articles of Association and the list of identified investors.
Special resolution and explanatory statement.
PAS-4 offer letter and PAS-5 record.
Valuation report where the issue is priced equity.
Investor KYC and valid DSC for ROC filings.

Need the full checklist? We share a ready private placement checklist when you engage us.

Common Private Placement Challenges and Solutions

Challenge	Impact	How Patron Accounting Solves It
Crossing the 200-person cap	Exceeding 200 identified persons in a year for a kind of security breaches Section 42. We track the count per instrument and per year.
Using funds before PAS-3	Subscription money cannot be used until PAS-3 is filed. We hold it in the separate account and release it only after filing.
Deemed public offer	Advertising the offer or allotting to non-identified persons can make it a deemed public offer. We keep the offer strictly private.
Missing the allotment window	Allotment must be within 60 days of receipt of money, else it is refunded. We schedule the allotment Board meeting in time.

Private Placement 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, PAS-5 record, allotment and the PAS-3 filing
Registered-valuer fee (priced equity)	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.

A registered-valuer fee for priced equity, 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 Private Placement consultation - Call +91 945 945 6700 or WhatsApp us. No-obligation assessment.

How Long Does a Private Placement Take?

Stage	Estimated Timeline
Overall	Usually a few weeks, driven by the 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; funds unlocked after filing

A private placement usually takes a few weeks, driven by 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. We sequence each step so the windows are met and the funds are unlocked promptly after PAS-3.

Key Benefits

Why Choose Professional Private Placement Support

Round Within the Section 42 Framework

The funding round is structured squarely within the Section 42 framework so the offer to identified persons stays out of public-offer territory.

PAS-4 Offer and PAS-5 Record

The serially numbered PAS-4 offer-cum-application letter and the PAS-5 record are prepared and maintained exactly as the rules require.

Separate Account and 200-Cap Managed

The separate scheduled-bank account is set up and the 200-person cap is tracked per instrument and per financial year.

PAS-3 Filed so Funds Unlock

PAS-3 is filed within 15 days of allotment so the subscription money is unlocked promptly and used compliantly.

Deemed-Public-Offer Risk Avoided

The strict private character of the offer is preserved, avoiding the deemed-public-offer penalty of up to the amount raised or Rs 2 crore.

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 Series A as a private placement, from the special resolution and PAS-4 to the separate account and PAS-3. Clean and fast." - Founder, technology startup, Bengaluru.

"We raised debentures through private placement. Patron managed the PAS-4, PAS-5 record and the 200-investor count without a hitch." - Director, NBFC, Mumbai.

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.

Private Placement and Preferential Allotment: How They Relate

Factor	Private Placement (Section 42)	Preferential Allotment (62(1)(c))
Nature	The framework for offering to identified persons	A preferential equity issue using that framework
Instruments	Equity, preference, debentures, convertibles	Mainly equity and convertible securities
Key documents	PAS-4 offer, PAS-5 record	PAS-4 plus the Rule 13 process and valuation
Relationship	Applies to a preferential allotment too	Must comply with Section 42 conditions

Related Share Capital and Funding Services

Private placement connects with the preferential route under Section 62(1)(c), with FDI and with other share capital actions. Patron handles the linked work too.

Preferential Allotment under Section 62(1)(c) for a priced equity round on a preferential basis, which must itself comply with Section 42.
Issue of Shares for other modes of issuing shares.
FDI Compliance for rounds with non-resident investors.
Change in Authorised Capital for the SH-7 increase before the round.
Private Limited Company Compliance for ongoing annual compliance.

Legal and Compliance Framework

Governing provisions: Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 governs private placement, as amended by the Companies (Amendment) Act, 2017 with effect from 2018.

Investor cap and approval: An offer may be made to a maximum of 200 persons in a financial year for each kind of security, excluding QIBs and ESOP, and each offer requires a special resolution, with a board resolution sufficing for certain NCDs within the Section 180(1)(c) limits.

Offer and funds: The offer is made in PAS-4 to identified persons with no right of renunciation, the PAS-5 record is maintained by the company, and subscription money is kept in a separate scheduled-bank account and not used until PAS-3 is filed.

Timelines and penalty: Allotment is within 60 days of receipt of money and PAS-3 within 15 days of allotment; a contravention is deemed a public offer, with a penalty up to the amount raised or Rs 2 crore, whichever is higher, plus refund.

Refer to the MCA portal for forms and to Section 42 on IndiaCode for the bare provision.

What is a private placement under Section 42?

A private placement under Section 42 of the Companies Act, 2013 is an offer of securities to a select group of identified persons, made through a PAS-4 offer-cum-application letter rather than to the public. It is the standard framework for raising a funding round and can be used for equity shares, preference shares, debentures and convertible securities.

How many investors can a private placement have?

A private placement can be offered to a maximum of 200 persons in a financial year for each kind of security, counted separately for equity shares, preference shares and debentures. Qualified institutional buyers and employees receiving securities under an ESOP are excluded from this 200-person limit, which lets larger rounds remain within the cap.

What are PAS-4 and PAS-5?

PAS-4 is the private placement offer-cum-application letter, serially numbered and addressed to each identified investor. PAS-5 is the record of private placement offers maintained by the company. Since the 2018 amendments, PAS-4 and PAS-5 are kept in the company’s records and are no longer filed separately with the Registrar of Companies.

Can private placement money be used before allotment?

No. The subscription money must be kept in a separate bank account with a scheduled bank and cannot be used for any purpose until the securities are allotted and the PAS-3 return of allotment is filed with the Registrar. It can only be used for allotment or for refunds where allotment is not made, which is a key Section 42 safeguard.

What is the time limit to file PAS-3?

PAS-3, the return of allotment, must be filed with the Registrar within 15 days of allotment. This timeline was reduced from 30 days by the 2017 amendment. Only after PAS-3 is filed can the company use the subscription money. Allotment itself must be completed within 60 days of receipt of the application money, failing which the money is refunded.

What happens if Section 42 is not complied with?

If a private placement is not made in compliance with Section 42, the offer is deemed to be a public offer, and the requirements of the Companies Act, the Securities Contracts (Regulation) Act and the SEBI Act apply. The penalty can extend to the amount involved in the offer or Rs 2 crore, whichever is higher, and the company must refund the money.

Can the right to subscribe be renounced in a private placement?

No. After the 2018 amendment, a private placement carries no right of renunciation, so an identified person cannot transfer the right to subscribe to someone else. Securities can be allotted only to the identified persons named in the records before the offer, which keeps the placement strictly within the chosen group of investors.

How is private placement related to preferential allotment?

Private placement under Section 42 is the framework for offering securities to identified persons, while a preferential allotment under Section 62(1)(c) is a preferential equity issue that must itself comply with Section 42. In practice a priced equity round is both, so the PAS-4, PAS-5 and separate-account rules of Section 42 apply alongside the Rule 13 process and valuation.

Private placement kya hota hai?

Private placement me company identified investors ko PAS-4 offer letter ke through securities offer karti hai, public ko nahi.

Private placement me kitne investors ho sakte hain?

Ek financial year me har tarah ki security ke liye zyada se zyada 200 identified persons ko offer kiya ja sakta hai.

Quick Answers

Offered to whom? Identified persons, max 200 per FY per security.

Offer document? PAS-4 offer letter; PAS-5 record maintained.

Funds? Separate account, usable only after PAS-3.

PAS-3 deadline? Within 15 days of allotment.

Why Get It Right

A funding round leaves no room for slips. The 200-person cap, the PAS-4 offer, the separate account and the 15-day PAS-3 all have to line up, and using funds early or advertising the offer can make it a deemed public offer with a penalty up to Rs 2 crore. Getting the framework right protects the round and the investors.

Run your private placement - Call +91 945 945 6700 or WhatsApp us. We respond within 2 hours.

Run Your Funding Round with Patron Accounting

Private placement under Section 42 is the framework behind most funding rounds: a PAS-4 offer to identified persons within the 200-person cap, a PAS-5 record, money held in a separate account and unlocked only after PAS-3, all within tight timelines and backed by a deemed-public-offer penalty for slips.

Getting the special resolution, the documents and the fund control right is what keeps a round clean. Patron Accounting, with qualified CAs and CSs and offices in Pune, Mumbai, Delhi and Gurugram, runs the full private placement 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 42, Rule 14, the 200-person cap, the PAS-4 / PAS-5 / separate-account conditions, the 60-day / 15-day windows, the deemed-public-offer penalty, or the FDI pricing and reporting rules change. Freshness Tier 1.

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