Private Placement Checklist: Every Step from Board Resolution to Allotment
TL;DR: A private placement under the Companies Act 2013 follows a strict sequence. Board resolution, special resolution, valuation report, offer letter (PAS-4), allotment within 60 days, and ROC filing (PAS-3). Missing a step can result in the allotment being treated as a public offer. This private placement checklist breaks down each stage so your company stays compliant.
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When a company raises capital from a select group like promoters, angels, or strategic partners, private placement is the most common route. It avoids the regulatory overhead of a public issue while still bringing in equity capital.
But "private" does not mean "informal." Section 42 of the Companies Act 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 impose specific forms, timelines, and filing obligations. Non-compliance can attract penalties and in certain cases, the allotment can be treated as a public offer.
This checklist for allotment of shares through private placement covers each step, with particular attention to the valuation report that many companies overlook.
What Is a Private Placement Under Companies Act 2013 ?
A private placement is an offer to subscribe to securities made to a select group of identified persons not exceeding 200 per type of security in a financial year (excluding qualified institutional buyers and ESOP employees). It is governed by Section 42 and is most commonly used by private and unlisted public companies.
This should not be confused with a preferential allotment under SEBI (ICDR) Regulations, which applies to listed companies and carries different pricing norms and regulatory oversight.
Complete Checklist for Allotment of Shares Through Private Placement
The private placement procedure under the Companies Act follows a sequential, time-bound process. Each step must be completed before the next begins.
Board Meeting and Resolution
The board passes a resolution approving the private placement specifying the type of securities, the number to be issued, the proposed offer price, and the identified offerees. The total number of offerees must not exceed 200 per type of security per financial year (excluding QIBs and ESOP allottees).
Special Resolution
Before the offer letter is issued, the company passes a special resolution through an EGM or postal ballot specifying the type and number of securities, the price or price band, the intended use of funds, and the class of identified persons. The company then files Form MGT-14 with the ROC within 30 days.
Valuation Report for Private Placement
This is the step most companies underestimate. A Private Placement Valuation by and IBBI Registered valuers establishes the fair value of the securities being offered, providing an independent basis for the offer price and protecting both the company and investors from future disputes or tax complications.
Under the Companies Act 2013, valuations for regulatory purposes must be conducted by a registered valuer registered with the Insolvency and Bankruptcy Board of India (IBBI). The report should state the methodology (commonly net asset value, discounted cash flow, or comparable company multiples), key assumptions, the effective date, and the fair value conclusion.
A robust valuation report is more than a compliance checkbox. It serves as evidence that the company priced its securities fairly, standing up to scrutiny from auditors, tax authorities, and future investors.
Private Placement Offer Letter (Form PAS-4)
The company issues the offer letter in Form PAS-4 to each identified person individually. It cannot be circulated through media, advertisements, or any form of public communication. The offer letter must reference the special resolution and disclose the terms, price, and intended use of proceeds.
Receive Application Money
Application money must be received through banking channels and deposited into a separate bank account. The company must allot securities within 60 days of receiving the money. If allotment is not made within this window, the company must refund within 15 days after the 60-day period expires, with interest at 12 percent per annum.
Allotment of Shares
The board passes the allotment resolution. Upon allotment, the company updates the register of members, issues share certificates (or updates depository records), and makes entries in the register of allotment, all within the 60-day statutory window.
ROC Filing (PAS-3 and Other Forms)
Within 15 days of allotment, the company files Form PAS-3 (return of allotment) with the ROC including the allottee list, securities details, consideration received, and the valuation report. If the company increased its authorised share capital, Form SH-7 must also be filed.
Common Compliance Gaps to Watch For
The most common gaps include exceeding the 200-person cap without realising that earlier offers in the same financial year count toward it, missing the 60-day allotment deadline (after which the company must refund with interest), and filing PAS-3 beyond the 15-day window.
The most consequential gap is an absent or inadequate valuation report. Without an IBBI-registered-valuer-issued valuation, the offer price lacks defensibility creating exposure during tax assessments under Rule 11UA, investor due diligence in subsequent rounds, and regulatory review of the allotment.
How Equirium Analytics Supports Private Placement Valuations ?
Equirium Analytic's team of IBBI-registered valuers prepares private placement valuation reports that are compliant, defensible, and structured for audit readiness with the right methodology for the company's stage and sector, clearly documented assumptions, and a conclusion that holds up under scrutiny.
