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It maintains all authentic records on the issue and make the directors
liable for the misstatement in the prospectus.
Contents:
The prospectus contains the main objectives of the company, the name
and addresses of the signatories of the memorandum of association and
the number of shares held by them.
The qualification share of directors and the interest of directors for the
promotion of company.
The number, description and the document of shares or debentures which
within the two preceding years have been agreed to be issed other than
cash.
The name and addresses of the vendors of any property acquired by the
company and the amount paid or to be paid.
particulars about the directors, secretaries and the treasures and their
remuneration.
Name and address of the auditors, bankers and solicitors of the company.
Time and place where copies of balance sheets, profits and loss account
and the auditors report may be inspected.
The auditors report so submitted must deal with the profit and loss of the
company for each year of five financial years immediately preceding the
issue of prospectus.
As per Section 32 of Indian Companies Act 2013 a Company can issue red
herring prospectus subject to certain conditions. Red herring prospectus means a
prospectus which does not include complete particulars of the quantum or price
of the securities included therein. A red herring prospectus, as a first or
preliminary prospectus, is a document submitted by a company (issuer) as part
of a public offering of securities (either stocks or bonds)
(1) A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus.
(3) A red herring prospectus shall carry the same obligations as are applicable
to a prospectus and any variation between the red herring prospectus and a
prospectus shall be highlighted as variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the prospectus
stating therein the total capital raised, whether by way of debt or share capital,
and the
closing price of the securities and any other details as are not included in the
red herring prospectus shall be filed with the Registrar and the Securities and
Exchange Board.
Conclusion
A public company raises its capital from the public and it issues prospectus for
this purpose. Sometimes, the promoters of a company decide not to approach
the public for raising necessary capital. They are hopeful of raising funds from
the friends and relations or through underwriters. In that case a prospectus need
not be issued but a Statement in Lieu of Prospectus must be filed with the
registrar at least three days before the first allotment of shares. Such a statement
must be signed by every person who is named therein as a director or proposed
director of the company. This statement will be drafted strictly in accordance
with the particulars set out in a part I of Schedule III of the Act
Information in Prospectus:
ii. dates of the opening and closing of the issue, and declaration about
the issue of allotment letters and refunds within the prescribed time;
iii. a statement by the Board of Directors about the separate bank account
where all monies received out of the issue are to be transferred and disclosure of
details of all monies including utilised and unutilised monies out of the previous
issue in the prescribed manner;
vi. the authority for the issue and the details of the resolution passed there
for;
vii. procedure and time schedule for allotment and issue of securities;
ix. main objects of public offer, terms of the present issue and such other
particulars as may be prescribed;
x. main objects and present business of the company and its location,
schedule of implementation of the project;
Every prospectus shall set out following reports for the purpose of financial
information:
i. Reports by the auditors of the company with respect to its profits and
losses and assets and liabilities and such other matters as may be prescribed;
ii. Reports relating to profits and losses for each of the five financial
years immediately preceding the financial year of the issue of prospectus
including such reports of its subsidiaries and in such manner as may be
prescribed. Where company has not completed five financial years than such
report for all financial years is required.
iii. Reports made in the prescribed manner by the auditors upon the
profits and losses of the business of the company for each of the five financial
years immediately preceding issue and assets and liabilities of its business on
the last date to which the accounts of the business were made up, being a date
not more than one hundred and eighty days before the issue of the prospectus.
Where company has not completed five financial years than such report for all
financial years is required.
iv. Reports about the business or transaction to which the proceeds of the
securities are to be applied directly or indirectly.
Declaration of Compliance:
Every prospectus shall make a declaration about the compliance of the
provisions of this Act and a statement to the effect that nothing in the prospectus
is contrary to the provisions of this Act, the Securities Contracts (Regulation)
Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the
rules and regulations made there under.
Clause (d) of Sub section (1) of section 26 give unlimited power to central
government to list other matters and set out other reports to be included in a
prospectus.
Statement of an Expert:
Every prospectus issued shall state that a copy has been delivered to the
Registrar and specify attached documents.
The registrar shall not register a prospectus all requirements has been complied
with and the prospectus is accompanied by the consent in writing of all the
person named in the prospectus.
Prospectus shall not be valid if it is issued more than ninety days after the date
on which a copy thereof delivered to the Registrar.
Caution:
If a prospectus is issued in contravention of the provisions of section 26, the
company shall be punishable with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh rupees and every person
who is knowingly a party to the issue of such prospectus shall be punishable
with imprisonment for a term which may extend to three years or with fine
which shall not be less than fifty thousand rupees but which may extend to three
lakh rupees, or with both.
A company may vary the terms of a contract refered in the prospectus or object
for which the prospectus was issued, only under approval or authority given by
way of special resolution.
The shareholders who have not agreed to the proposal to vary the terms of
contracts or objects referred to in the prospectus, shall be given an exit offer by
promoters or controlling shareholders at exit price as determined in accordance
with regulation made by the Securities and Exchange Board of India.
Any class of company may file a shelf prospectus with the Registrar of
Companies at the stage of first offer of securities.
The shelf prospectus shall indicate that validate period of the shelf prospectus is
a period not exceeding one year from the date of first offer of securities under
that prospectus. Once, a shelf prospectus has been issued, there will be no
requirement of any further prospectus for any subsequent offer of these
securities issued during this validity period.
A company may issue a red herring prospectus before the issue of a prospectus.
Red herring prospectus means a prospectus which does not include complete
particulars of the quantum or price of the securities included therein.
The company shall file red herring prospectus with Registrar of companies at
least three days before the opening of the subscription list and the offer.
A red herring prospectus shall carry the same obligation as are applicable to a
prospectus. In case there is any variation between red herring prospectus and a
prospectus shall be highlighted as variation in the prospectus.
Upon the closing of the offer of securities, the prospectus shall be filed with the
Registrar and the Securities and Exchange Board of India. This prospectus shall
state (a) total capital raised, (b) whether debt capital or share capital, (c) closing
price of the securities and (d) any other details not included in red herring
prospectus.
Every application form for the purchase of the securities of a company shall be
issued unless the form is accompanied by an Abridge Prospectus.
b) Private placement.
Any person may make a request for a copy of the prospectus before closing of
the subscription list and the offer. The company shall furnish a copy to him.
Any default in under this section, company shall be liable to a penalty of fifty
thousand rupees for each default.