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

Sagar Pharma Ltd, an unlisted public company, decides to issue shares by private placement to identified persons. Which statement is correct under section 42 of the Companies Act, 2013?

A private placement must be made only to persons identified by the Board, with subscription money paid by cheque, demand draft or other banking channel and not cash. The offer carries no right of renunciation, and no public advertisement is allowed.

  1. AThe offer may carry a right of renunciation so that identified persons can transfer the offer to others
  2. BSubscription money may be paid in cash if the amount is small
  3. CThe company may advertise the issue in newspapers if it states the offer is only for identified persons
  4. DThe offer must be made only to persons identified by the Board, and payment must come through cheque, demand draft or other banking channelCorrect

Explanation

Section 42 requires the offer to go to a select group identified by the Board, with payment by banking channel and not by cash. The offer cannot carry a right of renunciation, and public advertisements or marketing channels are barred.

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