Company law: private placement of shares
| Task | Rule |
|---|---|
| Receive subscription money in a separate bank account | Money must be kept in a separate bank account with a scheduled bank (section 42(6)) |
| Allot shares | Within 60 days of receiving the money; otherwise refund within the next 15 days, with interest if refunded late (section 42(6)) |
| File the return of allotment (PAS-3) | Within 15 days of allotment for a private placement (section 42(8)) |
| Special resolution and filings | Shareholder approval for the private placement, with the resolution filed with the Registrar in MGT-14 |
| Update the register of members and issue share certificates or credit demat accounts | Private companies other than small companies are generally required to hold securities in dematerialised form under the 2023 amendment to the share-capital rules |
FEMA: when investors are non-resident
- Issue price not lower than the fair value determined under an internationally accepted pricing method, supported by a valuation report from a chartered accountant, SEBI-registered merchant banker or practising cost accountant
- Report the allotment to the Reserve Bank of India in Form FC-GPR through the FIRMS portal within 30 days of allotment
- File the annual return on foreign liabilities and assets (FLA) by 15 July every year
- Confirm the investment is within the sectoral cap and route (automatic or government approval)
Income tax
The tax on share premium above fair value under section 56(2)(viib), often called angel tax, was abolished from assessment year 2025-26. Keep the valuation report anyway: it supports FEMA pricing and the company's records.
Finance and controls
- Agree the monthly or quarterly reporting pack the investors are entitled to under the shareholders' agreement, and set a close calendar that can deliver it
- Reconcile the cap table to the register of members and to ESOP grants
- Account for ESOPs as share-based payments, with a fair-value basis the auditor can test
- Put basic controls in place: payment approvals by two people above a set amount, vendor master changes reviewed, bank reconciliations every month
- Check whether the round changes your audit obligations — for example IFC reporting once turnover or borrowings cross the thresholds
References
- Companies Act, 2013, sections 42 and 62; Companies (Prospectus and Allotment of Securities) Rules, 2014
- Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (dematerialisation for private companies)
- Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and RBI Master Direction on Foreign Investment in India
- Income-tax Act, 1961, section 56(2)(viib), as amended by the Finance (No. 2) Act, 2024
This note is general information on the law as at October 2026. It is not advice for any specific situation.