The Private Placement Memorandum (PPM) for Indian Acquisitions: What First-Time Fund Managers & Searchers Must Disclose

Quick answer: India has no single legal document called a "PPM." If your vehicle is a company raising money by private placement, the governing document is the Form PAS-4 offer letter under Section 42 of the Companies Act, 2013. If your vehicle is a SEBI-registered Alternative Investment Fund, it's a SEBI-template placement memorandum filed through a merchant banker. Most first-time searchers end up on the Section 42 route, not the AIF route — a registered AIF's ₹20 crore minimum corpus and 25% single-investee concentration cap rule it out for a vehicle built to buy one business. Get a written opinion on which regime applies before any investor sees a term sheet.

A first-time searcher has verbal commitments from a dozen investors, a polished deck, and a "Private Placement Memorandum" template downloaded from a US search fund forum. The template talks about Regulation D, accredited-investor safe harbours and a Delaware LLC. None of that applies here. The document that does matter in India may not be called a PPM at all, and getting it wrong exposes you personally, not just the vehicle.

There Is No Single "PPM" in India

Three different documents go by this name, and your vehicle decides which one you are writing.

If your vehicle is a company, which is the usual SPV, the legal document is the private placement offer-cum-application letter in Form PAS-4. It is required by Section 42 of the Companies Act, 2013 and Rule 14 of the Prospectus and Allotment Rules. It has a prescribed disclosure list and is addressed to named persons. It is not called a PPM, but it is what a PPM has to do in law.

If your vehicle is a SEBI-registered Alternative Investment Fund (AIF), the placement memorandum follows SEBI's template and is filed with SEBI through a merchant banker.

Anything else, such as an LLP or a trust that never registers, has no prescribed format. The same exposure for misleading investors still applies, and there is a separate question of whether the structure needed SEBI registration in the first place.

The Threshold Question: Are You Running a Fund?

An AIF is a privately pooled investment vehicle that collects money from investors to invest under a defined policy for their benefit. It must register with SEBI before accepting commitments. A searcher who pools money from a dozen people to buy a business is close to that description on its face.

The definition has carve-outs. They include family trusts, ESOP trusts, holding companies within Section 2(46) of the Companies Act, and special purpose vehicles that are not established by fund managers and are regulated under a specific framework. A vehicle that ends up owning a majority of the target is the natural candidate for the holding-company exclusion.

Be careful with that argument. Under the Act's definition, a company is a holding company only in relation to companies that are its subsidiaries. A vehicle that has raised money but owns nothing yet is not obviously one. There is no ruling testing this for a searcher's pre-acquisition pooling. The SPV carve-out is also limited to vehicles not established by fund managers, which is awkward if you describe yourself as one.

SEBI's enforcement record shows how it reads the perimeter. In the HBJ Capital order, SEBI rejected the argument that the absence of a formal investment policy or placement memorandum meant the LLP was not an AIF. It held the directors and partners personally liable and ordered refunds. That case involved securities-market pooling, not acquisitions, so treat it as a signal and not a precedent for your structure. Get a written legal opinion on the perimeter before your first investor conversation, not after your first cheque.

Why the AIF Route Rarely Fits a First-Time Searcher

Registration is not the obstacle. The economics are. A registered AIF faces:

• a minimum corpus of ₹20 crore per scheme
• a minimum commitment of ₹1 crore per investor
• a continuing interest for the manager or sponsor of the lower of 2.5% of the corpus or ₹5 crore
• a limit for Category I and II funds of 25% of investable funds in any one investee company
• a placement memorandum filed through a merchant banker, with a due diligence certificate, at least 30 days before launching a scheme

The concentration cap decides it. A vehicle raising, say, ₹4 crore of equity to buy one ₹15 crore business fails on corpus, ticket size and concentration at the same time. The AIF regime is built for portfolios, not single-target acquisitions.

There is one route inside the AIF framework. Since September 2025, Category I and II AIFs can launch co-investment (CIV) schemes for accredited investors. Each scheme is limited to one investee company and needs its own shelf placement memorandum filed through a merchant banker. That helps an established fund manager offer co-investment alongside its fund. It does not help a searcher who has no fund.

The Section 42 Route: Where First-Time Managers Get Caught

For most searchers the practical path is a company issuing securities by private placement. The mechanics are unforgiving.

• Who can be offered: Only identified persons whose names the company records. The cap is 200 persons per financial year for each kind of security, excluding qualified institutional buyers and ESOP employees. There can be no public advertising and no marketing through media or distribution agents.
• Approvals: A special resolution and Form MGT-14 filing come before offer letters go out. The price needs a registered valuer's report, and the valuation date must be at least 30 days before the general meeting.
• The offer letter: It is serially numbered, addressed to a specific person, and sent within 30 days of recording that person's name. Only the addressee can apply.
• The money: It must come through banking channels from the subscriber's own account, into a separate account at a scheduled bank. The company cannot use it until the return of allotment (PAS-3) is filed within 15 days of allotment.
• The clock: Allot within 60 days of receiving application money. If you cannot, refund within a further 15 days, with 12% interest from day 61.

The consequences are real. If a company makes an offer or accepts money in breach of Section 42, the company, its promoters and its directors face a penalty of up to the amount raised or ₹2 crore, whichever is lower, plus a refund with interest. An issue that breaches the identified-persons and 200-person rules is treated as a public offer. Money that is neither allotted nor refunded on time can become a deemed deposit. Registrars are actively penalising these lapses — one order imposed ₹45 lakh on a company for failing to keep private placement money in a separate account.

This matters most for searchers because search capital usually arrives in tranches. Uncalled commitments are not application money, but once money is drawn the 60-day clock runs. Draw only against a defined allotment, and do not park investor money in the vehicle's account while you figure out the structure.

What the Document Must Say, and What an Indian Investor Will Expect Anyway

The statutory floor is the PAS-4 disclosure list. The rest is what any sophisticated investor will ask about, and what a regulator would look for if a dispute arose.

Who you are, and what you haven't done. PAS-4 asks for management particulars, director details, the company's financial position for the last three financial years, and any default in annual filings. A newly incorporated vehicle has no history, so state that plainly. SEBI's own AIF template makes track-record disclosure optional for first-time managers. Optional does not mean advisable. Say the vehicle has no operating history, list the experience you actually have, and never let a bio imply a track record you do not have.

The money. Disclose the following, with exact numbers:

• how search capital will be used, including your salary
• whether it converts into acquisition equity, and at what step-up
• your equity and how it vests
• what happens to unspent capital if no acquisition happens, and who bears the wind-down costs

Global search fund norms give a rough frame: a search period of up to about 24 months, a step-up on converting search capital (commonly around 1.5x), and a searcher equity stake of 20–30% vesting over time and on performance. These are US-derived. Indian terms vary, so do not present them as market standard here.

The target profile and structure. Say what you are buying and how. Share purchase versus asset purchase decides employee continuity, lease treatment and tax attributes — the same decision covered in what happens to the lease when the business doesn't own its building. It is also why a PPM should never project a tax shield from a target's carried-forward business losses in a majority acquisition. Under the Section 79 rule, those losses generally lapse.

SEBI's AIF template asks for risk factors specific to the strategy, ordered by materiality. The discipline is worth copying even where the template does not bind you. India-specific risks belong at the top: statutory arrears, informal receivables, unregistered leases, MSME payment exposure and inherited TDS history, all covered in our due diligence red flags guide.

Conflicts. Disclose every other role you hold, any relationship with sellers or intermediaries, any sourcing or success fee arrangement, and any related-party dealings. SEBI's template makes conflicts disclosure mandatory for AIFs, and it is the section investors read most closely.

Price and valuation basis. PAS-4 requires the basis of the price and the registered valuer's report. Our guide to valuing a small business in India covers how the number itself is built.

Return projections. Do not import headline IRRs from US search fund studies as if they describe Indian outcomes. Published guides quote different figures for the same asset class, and our own search fund explainer deliberately avoids quoting them. If you cite one, cite the primary study, label it as US data, and say it is not a forecast for your deal.

If You Take Foreign Money

Any non-resident investor adds a FEMA layer that the PPM should disclose.

• The issue price to a non-resident must not be below fair value, certified for an unlisted company by a chartered accountant, a SEBI-registered Category I merchant banker or, in some cases, a cost accountant.
• Shares must be allotted within 60 days of receiving the funds.
• Form FC-GPR must be filed on the RBI's FIRMS portal within 30 days of allotment.
• Only fully and compulsorily convertible instruments count as equity. Optionally or partly convertible instruments are treated as debt under the external commercial borrowing rules. A "convertible search note" drafted loosely can therefore land in the wrong regime.
• In practice, authorised dealer banks reject valuations more than about 90 days old at allotment. Time the valuation to the allotment.

What to Actually Check and Do

1. Settle the vehicle first. Get a written opinion on whether pooling for your structure needs SEBI registration, before any investor sees a term sheet.
2. Fix the instrument. Decide whether investors get equity or compulsorily convertible preference shares, and check that it maps correctly under FEMA if any investor is foreign.
3. Get the valuation before the board resolution. It cannot be obtained afterwards to fit a price already agreed.
4. Sequence the approvals. The board approves the identified persons and the draft offer letter, then comes the special resolution and MGT-14, and only then do offer letters go out.
5. Control the money. Take receipts only from subscribers' own accounts, into the separate account, and track the 60-day, 15-day and 15-day windows in a diary.
6. Reconcile every document. The deck, the offer letter, the shareholders' agreement and any LOI should say the same thing about fees, vesting and structure. Inconsistency between them is what investors use in a dispute.
7. Keep the record. The company must maintain a complete record of private placement offers in Form PAS-5.

Quick Reference

Frequently Asked Questions

Is a PPM legally required to raise money for an Indian acquisition vehicle?

Not under that name. A company raising money by private placement must use the Form PAS-4 offer letter. A registered AIF must have a SEBI-format placement memorandum. Other structures have no prescribed format, but the exposure for misleading statements remains.

Can I circulate my deck to a wider group first?

Be careful. A private placement cannot be advertised or marketed, and an offer beyond the 200-person limit is treated as a public offer. Circulate only to people you have identified and intend to offer to.

Do I need SEBI registration if I am only raising from a few friends and family?

Investor count alone does not answer it. The test is whether the structure is a privately pooled vehicle investing for the investors' benefit. Small size is not a defence, and this is why the opinion in step one comes first.

Can I collect commitments now and call the money later?

Uncalled commitments are not application money. Once money is drawn and received, the 60-day allotment clock runs. Draw against a defined allotment.

Do first-time managers have to disclose a track record?

SEBI's AIF template makes it optional. You should still state clearly that there is none, and describe your relevant experience without implying otherwise.

How should the PPM relate to the LOI?

They should be consistent on structure, price basis and terms. If the PPM was circulated before a target was named, update investors before or when the LOI is signed, and make sure the LOI's terms do not contradict what investors were told.