A preferential issue or private placement is the quickest way for a company to raise fresh capital from a select group of investors, without going to the public. Because the securities are offered only to chosen persons, the law controls who can be offered, how the price is fixed, how the money is received and how soon the securities must be allotted.

This article walks through the complete issue cycle, from the preparatory checks to the filing of the return of allotment and listing of the securities, with the timeline for each step.

Before Initiating the Issue

An offer to persons other than the identified persons, or beyond the 200-person limit, is treated as an offer to the public and attracts the full requirements of a public issue.

Step-by-Step Procedure

Step 1: Notice and Agenda to Directors – at least 7 days before the Board Meeting
(Applicable to All Companies)
Section 173(3) of the Companies Act, 2013 read with SS-1

• Notice of the meeting is required to be given in writing to every director at the address registered with the company.
• The agenda is required to cover the proposed issue, the list of identified persons, the issue size, the valuation report and the draft notice of the general meeting.

Step 2: Prior Intimation to Stock Exchanges – at least 2 working days before the Board Meeting
(Applicable in case of Listed Company)
Regulation 29 of the SEBI (LODR) Regulations, 2015

Prior intimation, mentioning the date of the meeting, is required where the Board is to consider fund raising by issue of securities. The 2 working days exclude the date of intimation and the date of the meeting.

Step 3: Holding the Board Meeting – on the date fixed
(Applicable to All Companies)
Sections 42, 62(1)(c), 173 and 174 of the Companies Act, 2013 read with SS-1

• The Board approves the proposed issue, the identified persons, the issue price and the notice of the general meeting.
• The power to issue securities under Section 179(3) can be exercised only by resolution passed at a Board Meeting.

Step 4: Disclosure of Outcome to Stock Exchanges and Website – within 30 minutes of conclusion of the meeting
(Applicable in case of Listed Company)
Regulations 30(6) and 30(8) read with Schedule III of the SEBI (LODR) Regulations, 2015

The decision on fund raising is required to be disclosed within 30 minutes of the conclusion of the meeting and hosted on the company’s website at the same time. Companies with listed non-convertible securities also make disclosures under Regulation 51.

Step 5: Filing of Board Resolution with ROC – within 30 days of the Board Meeting
(Applicable to Public Companies)
Section 117 read with Section 179(3) of the Companies Act, 2013

The Board resolution for issue of securities is required to be filed in e-Form MGT-14. Private companies are exempt from filing resolutions passed under Section 179(3).

Step 6: Minutes of the Board Meeting – draft within 15 days, signed within 30 days
(Applicable to All Companies)
Section 118 of the Companies Act, 2013 read with SS-1

Draft minutes are required to be circulated within 15 days, signed within 30 days of the meeting, and a signed copy circulated to all directors within 15 days of signing.

Step 7: Notice of General Meeting – at least 21 clear days before the meeting
(Applicable to All Companies)
Sections 100, 101 and 102 of the Companies Act, 2013 read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014

• The issue is special business, so the notice is required to carry an explanatory statement with the disclosures prescribed under Rule 13, such as the object of the issue, the price and its basis, the proposed allottees, and the shareholding pattern before and after the issue.
• Listed companies are required to submit the notice to the stock exchanges within 12 hours of dispatch and host it on the website.

Step 8: Newspaper Advertisement and E-voting – at least 21 days before the meeting
(Applicable in case of Listed Company)
Section 108 of the Companies Act, 2013 read with Rule 20 of the Companies (Management and Administration) Rules, 2014

• An advertisement about dispatch of the notice and e-voting is required to be published in one English and one vernacular newspaper, and submitted to the stock exchanges within 24 hours of publication.
• A cut-off date is required to be fixed for voting eligibility. E-voting is required to remain open for at least 3 days and close at 5:00 p.m. on the day before the meeting.
• Where a record date is fixed, notice of at least 3 working days is required to be given to the stock exchanges (Regulation 42).

Step 9: Passing of Special Resolution – on the date of the general meeting
(Applicable to All Companies)
Sections 42, 62(1)(c), 100 and 108 of the Companies Act, 2013 read with SS-2

• The issue is approved by special resolution of the members.
• Listed companies are required to submit the proceedings within 12 hours and the voting results within 2 working days (Regulation 44(3)), based on the scrutiniser’s report.
• Minutes of the meeting are required to be entered in the Minutes Book within 30 days.

Step 10: Filing of Special Resolution with ROC – within 30 days of passing the resolution
(Applicable to All Companies)
Section 117 of the Companies Act, 2013

The special resolution, along with the explanatory statement, is required to be filed in e-Form MGT-14. The offer letter can be issued only after this filing.

Step 11: Circulation of Offer Letter – after filing of the special resolution
(Applicable to All Companies)
Section 42 of the Companies Act, 2013 read with Rule 14

• The private placement offer letter is required to be issued in Form PAS-4, serially numbered and addressed to the identified person by name.
• A complete record of the offers made is required to be maintained in Form PAS-5.

Step 12: Receipt of Application Money – into a separate bank account
(Applicable to All Companies)
Section 42(4) and 42(6) of the Companies Act, 2013

• A separate bank account is required to be opened before any money is received.
• Application money is required to be received only through banking channels from the bank account of the applicant. Cash is not permitted.
• Money received cannot be used until the allotment is made and the return of allotment is filed.

Step 13: In-principle Approval of Stock Exchange – before allotment
(Applicable in case of Listed Company)
Regulation 28 of the SEBI (LODR) Regulations, 2015

An application for in-principle approval is required to be made to the stock exchanges, with the valuation report, resolutions, shareholding pattern and other prescribed documents.

Step 14: Allotment of Securities – within 60 days of receipt of application money
(Applicable to All Companies)
Sections 42(6), 62(1)(c) and 179(3) of the Companies Act, 2013 read with SS-1

• Notice of the Board Meeting for allotment is required to be given at least 7 days in advance, and listed companies are required to give prior intimation to the stock exchanges at least 2 working days in advance.
• The Board confirms that money has been received only from the identified persons in the separate bank account, and approves the allotment, the list of allottees and the basis of allotment.
• If allotment is not made within 60 days, the money is required to be refunded within the next 15 days. Money not refunded is treated as a deposit and carries interest at 12% p.a. from the 60th day.
• Listed companies are required to disclose the allotment to the stock exchanges within 30 minutes and host it on the website.

Step 15: Filing of Return of Allotment – within 15 days of allotment
(Applicable to All Companies)
Section 42(8) of the Companies Act, 2013 read with Rule 14

The return of allotment is required to be filed in e-Form PAS-3, with the list of allottees and the prescribed attachments.

Step 16: Issue of Securities and Listing – promptly after allotment
(Applicable to All Companies)
Sections 46 and 56 of the Companies Act, 2013; SEBI (LODR) Regulations, 2015

• Securities are required to be credited to the demat accounts of the allottees through the RTA and depositories, or share certificates issued where applicable.
• The Register of Members and other statutory registers are required to be updated.
• Listed companies are required to apply to the stock exchanges for listing and trading approval of the new securities.

Post-Issue Filings and Disclosures

Penalties for Non-Compliance

Preferential Issue / Private Placement at a Glance

BM = Board Meeting approving the issue; GM = General Meeting; R = Receipt of application money; AL = Date of allotment