# Private Placement of Securities (Section 42)

## Definition of Private Placement

'Private Placement' means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the specified conditions.

## Key Provisions (Section 42 & Rule 14)

### 1. Prior Approval by Special Resolution

The proposal must be previously approved by shareholders by a special resolution for each offer or invitation. (Form No. PAS-4)

Explanatory statement accompanying the notice must disclose:

#	Disclosure
(a)	Particulars of the offer including date of passing of Board resolution
(b)	Kinds of securities offered and the price at which security is offered
(c)	Basis or justification for the price (including premium, if any)
(d)	Name and address of valuer who performed valuation
(e)	Amount which the company intends to raise by way of such securities
(f)	Material terms of raising such securities, proposed time schedule, purposes/objects of offer, contribution by promoters/directors, principle terms of assets charged as securities

### 2. Number of Identified Persons

Private placement shall be made only to a select group of persons identified by the Board ('identified persons')
Section 42 limit: number shall not exceed 50 OR such higher number as may be prescribed
Excluded from the count: Qualified Institutional Buyers (QIBs) and employees offered securities under an ESOP scheme
Rule 14 (Higher Number Prescribed): not more than 200 persons in the aggregate in a financial year

> Reconciliation: Since the higher number of 200 has been prescribed by Rule 14, the maximum number is 200 in a financial year (excluding QIBs and ESOP-employees).

### 3. Multiple Issues Permitted

A company may make more than one issue of securities to such class of identified persons as may be prescribed. The aggregate number must not exceed 50 (or the higher prescribed limit of 200).

### 4. Form and Manner of Offer

A company making private placement shall issue private placement offer and application in such form and manner as prescribed (Form PAS-4) to identified persons whose names and addresses are recorded by the company.

### 5. No Right of Renunciation

The private placement offer and application shall NOT carry any right of renunciation, i.e., the offer is personal to the identified person and cannot be transferred to another.

Worked example

### Example 1

Example 1 (Maximum identified persons): XYZ Ltd. proposes a private placement in FY 2026-27. It can identify up to 200 persons (the prescribed higher limit), excluding QIBs and ESOP-employees, for the offer in that financial year.

### Example 2

Example 2 (Multiple issues): A company issues debentures via private placement in April 2026 to 80 persons and then equity shares via private placement in October 2026 to 130 persons. Aggregate = 210, which EXCEEDS the limit of 200. This is a violation.

### Example 3

Example 3 (Special Resolution): A company wants to raise funds through private placement of preference shares. It must call a general meeting and pass a SPECIAL RESOLUTION (3/4th majority) for THIS specific offer. An ordinary resolution or a blanket special resolution covering future offers will not suffice.

### Example 4

Example 4 (No renunciation): Mr. A is identified by the Board of M Ltd. and offered 5,000 shares under private placement. He wishes to renounce 2,000 shares in favour of his friend Mr. B. He CANNOT do so - the offer carries no right of renunciation.

### Example 5

Example 5 (Exclusion of QIBs): A company offers securities to 150 retail HNIs, 30 QIBs, and 20 employees under ESOP in a financial year. Count for Section 42 = 150 (since QIBs and ESOP-employees are excluded). This is within the 200 limit.

⚠️ Common exam mistakes

Treating private placement as 'public offer' simply because of multiple investors - private placement is specifically excluded from being a public offer.
Including QIBs and ESOP-employees in the 200-person count - they are EXCLUDED.
Applying the 50-person limit when the higher prescribed limit of 200 is now applicable under Rule 14.
Believing an ordinary resolution suffices - a SPECIAL resolution is required for each offer.
Allowing renunciation of private placement offer - it is strictly non-renounceable.
Forgetting that the 200 limit is AGGREGATE per FINANCIAL YEAR (not per offer).

Bare-Act text Section 42 read with Rule 14 · The Companies Act, 2013; Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 2014 · click to expand

Section 42: A company may, subject to the provisions of this section, make a private placement of securities. 'Private placement' means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified. The offer must be previously approved by shareholders by a special resolution. Offer to identified persons not exceeding 50 (or higher number as may be prescribed, currently 200 under Rule 14) excluding QIBs and ESOP employees in a financial year. Offer shall not carry any right of renunciation.

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