Prospectus

Definition

• According to Sec. 2 (36),Prospectus means anydocument described orissued as a prospectus andincludes any notice,circular, advertisement orother document invitingdeposits from the public orinviting offers from thepublic for the subscriptionor purchase of any sharesin, or debentures of, abody corporate.

Definition

• An advertisement

offering to the public,

shares or debentures of

the company for sale, is

a prospectus.

Rules regarding the issue of prospectus

• Registration of prospectus.• Time limit for issue of

prospectus• Purpose of registration of

prospectus.• Particulars of records to be

furnished.• Dating of prospectus.• Penalty of non registration of

prospectus.• Registrars refusal to register.

Registration of prospectus

• A copy of the prospectus

duly signed by every

director or proposed

director or his agent, must

be delivered to the Registrar

for registration before its

publication.

Time limit for issue of prospectus

• The prospectus must be

issued within 90 days of

the date of which a copy

thereof is delivered for

registration.

Purpose of registration of prospectus.

• Registration of prospectus

presents an authoritative

record of the terms and

conditions of the capital

issue.

Particulars of records to be furnished.

• (a) consent in writing of the

expert (b) copy of every

material contract relating to

appointment and remuneration

of managerial personnel (c) a

written statement relating to

adjustment if any and (d)

consent in writing of auditors,

legal advisors and bankers.

Dating of prospectus

• Every prospectus must be

dated. This date shall be

taken as the date of

publication of prospectus.

Penalty of non registration of prospectus.

• If a prospectus has beenissued without it beingregistered, the companyand every person party tothe issue of the prospectusshall be punishable withfine which may extend toRs. 50 thousand.

Registrars refusal to register

• Registrar can refuse to

register if any of the

following rules are

violated.

Contents of Prospectus• Name and address of the

registered office of thecompany.

• Main objects of the companywith names, addresses anddescription and occupations ofthe signatories.

• The number and class of shares.

• Remuneration of directors.

• Minimum amount ofsubscription to be raised whenshares are offered to the public.

Contents of Prospectus• Amount to be shared on

application and allotment ofeach share.

• Details of every contractwith the company.

• Name and address ofauditors and lead managers.

• Time and place where thecontracts may be inspected.

• Nature and extend of therestrictions imposed uponthe members of thecompany.

Types of prospectus

• Abridged prospectus.

• Shelf prospectus.

• Red Herring Prospectus.

• Deemed prospectus.

Abridged prospectus

• The companies Act of 1988provided for thecompanies to furnish alongwith the application formfor shares or debentures,an abridged form of theprospectus, instead of thecomplete prospectus. Itshould contain all therelevant details as laiddown in the informationmemorandum.

Shelf prospectus

• Shelf prospectus means aprospectus issued by anyfinancial institution or bankfor one or more issues ofsecurities or class ofsecurities specified in thatdocument. It enables publicfinancial institutions andbanks to raise capital fromthe public more than oncewithout issue of freshprospectus every time.

Red Herring Prospectus

• A company may issue aprospectus called redherring prospecus beforethe actual opening of thesubscription list along withan informationmemorandum. It givesonly a general idea aboutthe securities.

Deemed prospectus

• When a company allot itsshares to an intermediarycalled issuing house foroffering them for sale tothe public, the documentby which the offer is madeto the public by the issuinghouse is called deemedprospectus.

Misstatement in prospectus

• Misstatement includes

– Untrue statement.

– Statement which produce wrong impression.

– Statement which are misleading.

– Concealment of material facts.

– Omission of facts.

Effect of misstatement

• A misleading statement inthe prospectus make thecompany liable to theshareholders and theshareholders may on thegrounds ofmisrepresentation rescindthe contract and may claimthe money deposited withthe company.

Remedies of misstatement

Remedies against the company

Remedies against the directors, promoters and experts

1. Suit for compensation.2. Suit for damages for

misrepresentation.

1. Rescission of the contract.2. Suit for damages.

Rescission of the contract

• When a prospectuscontains a misstatement,the person who is inducedby such misstatement tosubscribe to shares ordebentures is entitled torescind the contract.

Suit for damages

• A subscriber is entitled toclaim damages from thecompany apart fromrescinding the contract

Suit for compensation

• All these people will beliable to pay compensationto any and every personwho subscribed for sharesor debentures placingreliance on the prospectus.

Suit for damages for misrepresentation

• Section 62 imposes liabilityon the directors orpromoters if there is anuntrue statement in theprospectus.

Statement in lieu of prospectus

• If the promoters of a publiccompany are confident ofraising the required capitalprivately, no prospectusneed be issued to public. Insuch case, they are toprepare a draft prospectuscontaining the informationrequired to be disclosed.This document is calledStatement in lieu ofprospectus.