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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Private Funding

Meridian Components Ltd offers equity shares by private placement. Which of the following is a legal requirement under the Companies Act, 2013 for such an offer?

A private placement can be made only to a select group of persons identified by the Board, and the offer and application carry no right of renunciation. Advertisements to the public and cash payments are not permitted.

  1. AThe offer and application can carry a right of renunciation in favour of nominees
  2. BThe offer must be advertised in newspapers so that identified persons are informed
  3. CSubscription money may be accepted in cash if the amount is small
  4. DThe offer must be made only to persons identified by the Board, and it carries no right of renunciationCorrect

Explanation

Section 42(2) and 42(3) require the offer to go to identified persons, and the proviso says the offer and application cannot carry a right of renunciation. Section 42(7) bars public advertisements, and section 42(4) requires payment by cheque, demand draft or banking channel and not cash.

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