Private Placement Compliance Pitfalls That Can Sink a Startup Fundraise: A Practical Guide to Section 42

| Last updated: 27 June 2026

Quick Summary
Private placement under Section 42 of the Companies Act, 2013, is crucial for startup funding but often mishandled. This guide highlights common errors founders make, such as misusing application money before filing the return of allotment (PAS-3) or missing the strict 60-day allotment and 15-day refund deadlines. It also covers issues like breaching the 200-investor limit and failing to comply with FEMA regulations for foreign investors, all of which carry significant financial and legal consequences.

Introduction Private placement under Section 42 of the Companies Act, 2013 is the unglamorous workhorse behind almost every startup funding round in India. Every time a startup issues equity shares, Compulsorily Convertible Preference Shares (CCPS), or Compulsorily Convertible Debentures (CCDs) to
Daily Limit Reached

You have reached your daily limit of 2 Free Articles

Subscribe to CCI PRO for unlimited access

Why Upgrade to CCI PRO?
  • No Ads
  • WhatsApp Community
  • Daily E-Newsletter
  • Unlimited Articles Access
  • Profile Visitors
  • Link Social Profiles
  • Featured Job Posts
  • Pro Badge
  • Expert GST Guidance
  • Unlimited Forum Replies
  • Download Content in PDF
BEST VALUE
2 YEAR PLAN
3,499
(Excl. of GST ₹629)
1 YEAR PLAN
1,999
(Excl. of GST ₹359)

3 MONTHS PLAN
999
(Excl of GST ₹179)
View all CCI PRO benfits

Already a PRO member? Login here for an ad-free experience.



Priyanshi Garg

About the Author

Student

As a qualified Company Secretary, I bring hands-on experience in corporate governance, regulatory compliance, and end-to-end transaction support across both private and listed company frameworks. Over the course of my professional journey, I have been actively involved in private placements, rights issues, bonus issue ... Read more

View Articles
Comments :

Related Articles


Loading


Popular Articles




Trending Online Classes

view all classess

CCI Pro
Meet our CAclubindia PRO Members
Pro Member Nayan shettyNayan shettyPro Member sameersameerPro Member AnoopAnoopPro Member DSK TMCDSK TMCPro Member Veerabadrayya TVeerabadrayya T
Subscribe to Pro
Join an elite circle of professionals

CCI Articles

You can also submit your article by sending to article@caclubindia.com

submit article

Browse by Category