Question

State, whether the following statements are True or False.

In private placement shares are issued to public through prospectus.

Answer 1

False

Explanation: In private placement of shares, no applications are invited from the general public for subscribing to the shares of the company. According to section 81(1A) of the Companies Act, 1956, when the promoters of a public company are confident of raising capital through private sources, the company does not invite the public to subscribe for shares. Instead the company promotes the private placement of shares to promoters, friends and other private sources. The promoters are required to prepare a draft prospectus known as ‘statement in lieu of prospectus’ and file it with the Registrar of Companies at least 3 days before the first allotment.