Bringing in money means issuing shares — and that has a procedure
Sooner or later a growing company needs to put new shares on the table: to take an investor's cheque, to bring a co-founder onto the cap table, to convert a loan into equity. Founders often picture this as a quick entry in a spreadsheet. It is not. Issuing new shares in a Private Limited company runs through a defined company-law procedure, and getting the sequence wrong — the resolution, the valuation, the sixty-day clock, the return — can invalidate the allotment or draw a penalty. Here is how it actually works, from the authorised-capital ceiling to the Form PAS-3 that closes it out.
First: is there room? Authorised capital versus paid-up
Every company has two capital figures. Authorised capital is the ceiling set in the memorandum — the most the company is allowed to issue. Paid-up capital is what has actually been issued and paid for. You can only issue new shares up to the authorised ceiling, so the first question before any issue is whether the new shares fit under it. If they do not, you have to raise the ceiling first.
Raising it is a Section 61 step: the members pass an ordinary resolution at a general meeting to increase the authorised capital and amend the memorandum, and the company files Form SH-7 with the Registrar within thirty days of that resolution, with the altered memorandum and the prescribed fee. One catch to check before you start — the Articles of Association must permit the increase; if they do not, you alter the Articles first. Only once there is headroom under the authorised capital does the actual issue begin.
The three routes to issue new shares — Section 62
Once there is room, Section 62 of the Companies Act, 2013 governs how a company issues further shares, and it gives three routes:
- Rights issue (Section 62(1)(a)) — new shares offered to the existing shareholders in proportion to their current holdings. The offer is made by a letter of offer specifying the number of shares and a window to accept of not less than fifteen and not more than thirty days; a shareholder can accept, decline, or renounce the offer in favour of someone else. Because it protects everyone's percentage, a rights issue does not need a shareholders' special resolution — a board resolution runs it.
- Employee stock options (Section 62(1)(b)) — shares offered to employees under an approved ESOP scheme.
- Preferential allotment / any other persons (Section 62(1)(c)) — shares issued to identified persons who may not be existing shareholders, such as an incoming investor. This is the route most fundraises use, and it carries two extra requirements: a special resolution of the members, and — for an unlisted company — a valuation by a registered valuer (an IBBI-registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017) fixing the price at which the shares may be issued.
Preferential allotment runs on the private-placement machinery — Section 42
When shares go to identified outside investors, the offer is made through the private placement process in Section 42, and this is the part with the most moving pieces:
- The offer is made through a private placement offer letter in Form PAS-4, sent to the specific identified persons — you cannot advertise it or offer it to the public.
- The offer may be made to no more than two hundred persons in a financial year (counted per kind of security, and excluding qualified institutional buyers and employees under an ESOP). Cross that line and it stops being a private placement and becomes a public offer.
- The application money must come through banking channels — cheque, demand draft or electronic transfer, never cash — into a separate bank account, and it cannot be used until the shares are allotted and the return is filed.
- Shares must be allotted within sixty days of receiving the application money. If they are not, the money must be refunded within fifteen days, and money kept beyond that carries interest at 12% per annum.
- A company cannot make a fresh private-placement offer while an earlier one is still open or unallotted.
The return that closes it out — Form PAS-3
Every allotment ends with a return. Form PAS-3, the Return of Allotment, is filed with the Registrar within fifteen days of the allotment, together with the complete list of allottees — their names, addresses and the number of shares each received. For a private placement this filing is not just a formality: the company cannot utilise the money raised until PAS-3 has been filed. Around the same time, two housekeeping steps complete the issue — the company updates its register of members (Section 88) and issues share certificates within two months of the allotment (Section 56). Skipping PAS-3, or filing it late, is exactly the kind of default that surfaces later in the annual MGT-7, when the changed shareholding has to be reported.
If the investor is foreign, add one more filing
Where the incoming shareholder is a person resident outside India — a foreign investor or a foreign parent subscribing to more shares — the allotment also triggers the FEMA reporting: Form FC-GPR through the RBI's FIRMS portal within thirty days of the allotment, supported by the registered-valuer valuation and the bank's inward-remittance details. The company-law procedure and the FEMA procedure run together on the same allotment, and both clocks start on the same day. We cover that side in full in the foreign subsidiary setup guide.
Where this sits in the company's life
Issuing shares is one of the defining events of a company's growth, and it connects to almost everything else in its file. The capital structure begins at incorporation, where the authorised and paid-up capital are first set; every later change flows through to the annual AOC-4 and MGT-7 and belongs on the Private Limited compliance calendar. And for a startup raising money, the instruments in our guide to convertible notes, CCPS and SAFEs all eventually resolve into exactly this — an allotment of shares, run through Section 62 and Section 42, closed with a PAS-3.
How we handle it at RDA, Baner
At RDA Advisory, Baner, we run share issues end to end so the allotment stands up. We check the authorised-capital headroom and file the SH-7 if it needs raising, draft the board and special resolutions, arrange the registered-valuer valuation, prepare the PAS-4 offer letter and the private-placement paperwork, keep the money in the right account and the allotment inside the sixty days, and file the PAS-3 within the fifteen days — with the FC-GPR alongside it where a foreign investor is involved. Then we update the register of members and issue the share certificates so the cap table is clean. Office No. 102, Snehraj Apartment, Baner, Pune 411045 · call +91 77570 45059.
Raising money or adding an investor? Let's do the allotment properly
Taking on an investor or issuing new shares and want the paperwork to hold up? RDA handles the whole issue — authorised-capital increase, resolutions, valuation, the PAS-4 offer, allotment within the deadline and the PAS-3 return, plus the FC-GPR for foreign investors. Book a consult at rdatax.in or call +91 77570 45059, or see our ROC and secretarial service. RDA Advisory, Baner, Pune.
Verification note: The requirements described here are based on the Companies Act, 2013 and the rules made under it, as administered by the Ministry of Corporate Affairs (mca.gov.in): the increase of authorised share capital under Section 61 by ordinary resolution where the Articles so permit, with notice to the Registrar in Form SH-7 within thirty days of the alteration under Section 64, accompanied by the altered memorandum; the further issue of share capital under Section 62 by way of a rights issue to existing shareholders (with an offer period of not less than fifteen and not more than thirty days and the right of renunciation), an employee stock option scheme, or a preferential allotment to identified persons requiring a special resolution and, for an unlisted company, a valuation by a registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017; the private placement of securities under Section 42 through a private placement offer letter in Form PAS-4 to not more than two hundred persons in a financial year (per kind of security, excluding qualified institutional buyers and employees under a stock option scheme), with application money received only through banking channels into a separate bank account, allotment within sixty days of receipt of the application money failing which the money is refunded within fifteen days with interest, and no utilisation of the money until the return of allotment is filed; the filing of the return of allotment in Form PAS-3 within fifteen days of the allotment; the issue of share certificates within two months of allotment under Section 56 and the maintenance of the register of members under Section 88; and, where the allottee is a person resident outside India, the reporting of the issue in Form FC-GPR on the RBI's FIRMS portal within thirty days of allotment under FEMA, 1999. Forms, fees, thresholds and time limits are periodically revised by the MCA and the RBI; confirm the current requirements for your issue with your CA or company secretary. This is general information, not legal or professional advice.
