CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Private Funding
Under section 42 of the Companies Act, 2013, what is the position about utilising monies raised through a private placement?
A company cannot use private placement money until allotment has been made and the return of allotment has been filed with the Registrar. Until then, application money is held in a separate scheduled bank account for adjustment against allotment or refund.
- AFunds may be used immediately after receipt for working capital
- BFunds may be used once the board approves, with the return filed later
- CFunds may be used only after allotment is made and the return of allotment is filed with the RegistrarCorrect
- DFunds may be used once the offer is closed to identified persons
Explanation
The proviso to section 42(4) bars utilisation until allotment is made and the return of allotment is filed with the Registrar. Mere board approval or closing of the offer is not enough.
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