Share Issue Compliance: Rights Issue, Private Placement and Allotment Basics
Choose the right issuance route before receiving money, issuing an offer or promising equity.
A signed term sheet does not issue shares. Neither does receipt of money. A valid issuance needs the correct statutory route, approvals, offer documentation, valuation, banking trail, allotment and post-allotment records. Choosing the route after funds arrive is a common and avoidable mistake.
Rights issue, private placement, preferential issue and ESOP allotment have different procedures.
Subscription money must follow the permitted banking route and match the named applicant.
Companies Act, tax and FEMA valuation questions may all arise at the same time.
Allotment, PAS-3, certificates, stamp duty and registers finish the transaction.
1. The operating framework
| Route | When it fits | Key controls |
|---|---|---|
| Rights issue | Offer to existing equity holders in proportion to holdings, subject to the Act and Articles. | Board approval, offer letter, acceptance/renunciation rules, shorter period only where legally permitted, allotment and PAS-3. |
| Private placement | Offer to identified persons within the statutory framework. | Special resolution where required, named offerees, PAS-4/PAS-5 process, 200-person limit per security class, banking channel, allotment within 60 days and PAS-3 within prescribed time. |
| Preferential issue | Issue to selected persons under Section 62(1)(c), usually alongside private-placement compliance. | Special resolution, disclosures, registered-valuer report, pricing, allotment period and non-cash accounting where relevant. |
| ESOP exercise | Allotment after a valid employee option scheme and exercise. | Scheme approval, grant/vesting/exercise records, exercise money, tax/payroll treatment, allotment and SH-6/cap-table update. |
| Bonus issue | Capitalisation of eligible reserves to existing holders. | Articles, authorised capital, Board action, no default conditions, allotment and certificates/depository credit. |
2. CFO playbook
- Write a route memo before sending any offer or accepting funds.
- Check authorised capital, Articles, shareholder agreement and reserved-matter consents.
- Map Companies Act valuation, income-tax valuation and FEMA pricing separately; one report may not answer every question.
- Create an identified-offeree list and verify names, addresses, PAN/KYC and bank-account ownership.
- Use a dedicated money tracker: offer date, receipt date, amount, bank source, allotment deadline and refund trigger.
- Hold the allotment meeting only after conditions are satisfied and subscription funds are clear.
- File PAS-3, issue certificates/depository instructions, pay stamp duty and update registers and cap table.
3. Practical example
A startup plans to issue CCPS to two investors and collect money immediately. Before receipt, it should confirm authorised capital, special-resolution and investor-consent requirements, Section 42 and preferential-issue compliance, valuation and FEMA position. The bank remittance, allotment and FC-GPR clocks should be designed as one closing calendar.
4. Common failure points
- Using a rights issue to disguise a pre-agreed selective allotment.
- Receiving funds from a bank account different from the named subscriber without resolving the issue.
- Treating a valuation report as evergreen.
- Missing the allotment/refund clock for private placement.
- Updating the cap table but not the register, PAS-3 or certificate record.
5. Evidence folder
- Route and applicability memo
- Articles/SHA consent checklist
- Board and shareholder resolutions
- Offer and application documents
- Valuation reports
- Subscriber KYC and bank trail
- PAS-3, certificates, stamp duty and register extracts
6. Finin2min takeaway
Design the evidence before the transaction.
Reliable compliance is the result of clear ownership, timely action, reconciled records and a documented escalation route—not a last-minute filing exercise.