# Private Placement & Preferential Allotment

> A preferential allotment under Section 62(1)(c) issues shares to selected persons, and in a private company is usually made through the private placement process under Section 42: a special resolution, a valuation by a registered valuer, a private placement offer letter (PAS-4), a record of offers (PAS-5), money in a separate bank account and a return of allotment (PAS-3) within 15 days.

Practice: Company Secretary & Corporate Compliance — https://www.industax.com/services/company-secretary/

This is the route most startups use for angel and VC rounds and for allotments to strategic investors. The offer can be made to at most 200 persons in a financial year (excluding qualified institutional buyers and employees under ESOP).

The special resolution is filed with the ROC in MGT-14 within 30 days. The price must be supported by a registered valuer's report, and for non-resident investors also by a FEMA-compliant valuation.

Because these documents are scrutinised in later rounds, we build a clean file for each round — resolutions, valuation, PAS-4 with its annexures, PAS-5 and proof of funds.

## Key facts

| Item | Detail |
| --- | --- |
| Approval | Special resolution; MGT-14 within 30 days |
| Valuation | Registered valuer (Rule 13); FEMA valuation for non-residents |
| Offer documents | PAS-4 offer letter and PAS-5 record of offers |
| Investor limit | Up to 200 persons per financial year (excluding QIBs and ESOP) |
| Return of allotment | PAS-3 within 15 days |

## Who needs this

- Startups closing angel, seed or VC rounds
- Companies issuing shares or CCPS to strategic investors
- Promoters infusing capital at a premium

## What's included

- Resolutions and explanatory statement
- Registered valuer coordination
- PAS-4, PAS-5 and PAS-3
- MGT-14 and FC-GPR filings
- Updated cap table and registers

## Documents

- Term sheet / SHA
- Investor KYC and PAN
- Latest financial statements
- Valuation report

## Process

1. **Plan** — Instrument, price and investor list confirmed.
2. **Approvals** — Board and special resolution; MGT-14 filed.
3. **Offer** — PAS-4 issued; PAS-5 maintained; funds received.
4. **Allotment** — Shares allotted; PAS-3 and FC-GPR filed.

Work that legally requires a IBBI Registered Valuer is signed by a partner professional; Indus Tax coordinates it.

## FAQs

### Is a valuation report mandatory for a preferential allotment?

Yes. The price must be determined by a registered valuer's report; non-resident investments also need FEMA-compliant pricing.

### How many investors can a private placement be offered to?

Up to 200 persons in a financial year, excluding qualified institutional buyers and employees offered securities under an ESOP.

### Is angel tax a concern for share premium now?

No for issues from AY 2025-26 onwards — Section 56(2)(viib) no longer applies — but the price must still be justified by valuation for Companies Act and FEMA purposes.

## Official sources

- Ministry of Corporate Affairs — MCA21 portal: https://www.mca.gov.in/
- Companies Act, 2013 (India Code): https://www.indiacode.nic.in/handle/123456789/2114

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Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.