Share Allotment and PAS-3 Filing Under Companies Act 2013: Step-by-Step Procedure

Raising equity funding—whether from angel investors, seed venture capital funds, or strategic partners—is a defining milestone for startups and private companies. However, issuing equity shares is strictly governed by Section 42, Section 62, and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Failing to comply with the statutory sequencing of shareholder approvals, valuation rules, and Form PAS-3 filing can render the allotment void and attract severe penalties of up to the entire amount involved or ₹2 Crores.

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Executing a private placement share allotment requires following a strict legal order:

1. Step 1: Obtain IBBI Valuation Report - Determine the Fair Market Value (FMV) of the equity shares.
2. Step 2: Board Meeting - Approve the draft private placement offer letter and issue notice for an Extraordinary General Meeting (EGM).
3. Step 3: EGM Approval - Pass a Special Resolution with 75% shareholder majority.
4. Step 4: File Form MGT-14 - Submit the Special Resolution to ROC within 30 days of passing it.
5. Step 5: Issue Form PAS-4 & Maintain Form PAS-5 - Send private placement offer letters to identified investors and record entries in the register.
6. Step 6: Open Separate Scheduled Bank Account - Receive subscription money through banking channels. The 60-day allotment countdown starts upon receipt.
7. Step 7: Board Meeting for Allotment - Formally allot shares within 60 days of fund receipt.
8. Step 8: File Form PAS-3 - Submit Return of Allotment with the ROC within 30 days of allotment. Funds can only be utilized after filing.
9. Step 9: Issue Share Certificates & Remit Stamp Duty - Deliver stamped certificates (Form SH-1) within 2 months.

Milestone 1: Registered Valuer Report

A private limited company cannot arbitrarily fix its share issue price. An independent valuation report issued by an Insolvency and Bankruptcy Board of India (IBBI) Registered Valuer is mandatory to justify the fair market value (FMV) of the equity shares under both the Companies Act and Rule 11UA of the Income Tax Rules.

Milestone 2: Special Resolution and Form MGT-14

Shareholders must approve the private placement offer via a Special Resolution (75% majority) in an Extraordinary General Meeting (EGM). The company must file Form MGT-14 with the ROC within 30 days of passing the resolution *before* circulating the offer letter.

Milestone 3: Private Placement Offer Letter (PAS-4 & PAS-5)

The company issues a private placement offer letter in Form PAS-4 to identified persons, recording their names in the statutory register in Form PAS-5. The offer cannot be advertised to the general public.

Milestone 4: Separate Scheduled Bank Account

Application money must be paid from the subscriber's bank account via banking channels (cheque, NEFT, RTGS). Cash transactions are strictly forbidden. The company must keep these funds in a dedicated separate bank account and cannot utilize them until Form PAS-3 is submitted to the ROC.

When filing Form PAS-3 on the MCA V3 portal within 30 days of the allotment board resolution:

1. List of Allottees: Certified spreadsheet detailing full name, address, PAN, class of shares, number of shares allotted, nominal value, and premium paid.
2. Copy of Special Resolution & Board Resolution: Authorizing the private placement and allotment.
3. Valuation Report: Issued by the IBBI Registered Valuer.
4. PAS-4 Offer Letter & PAS-5 Register Extracts.

Following successful approval of Form PAS-3:

• Issue of Share Certificates: Deliver physical share certificates (Form SH-1) signed by two directors or credit demat shares within 2 months from the date of allotment under Section 56(4).
• Payment of State Stamp Duty: In Kerala, stamp duty on share certificates must be remitted to the District Treasury / Revenue Department within 30 days of certificate issuance. Failure to stamp certificates renders them inadmissible as evidence in court and attracts heavy penalty interest.

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