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Meaning and definition of prospectus and the various contents thereof:

After the receipt of certificate of incorporation, if the promoters of a public


limited company wishes to issue shares to the public, he will issue a document
called prospectus. It is an invitation to the public to subscribe to the share
capital of the company. The companies Act, 1956 defines prospectus as any
document described or issued as a prospectus and include any notice, circular,
advertisement or other documents inviting deposits from the public or inviting
offer from the public for the subscription of shares. It is circulated among the
public in printed pamphlets. It gives all necessary information about the
company so that the prospective shareholders may fully understand the
objectives and the plans of the company.

Prospectus is issued with the following broad objectives:

It informs the company about the formation of a new company.

It serves as a written evidence about the terms and conditions of issue of


shares or debentures of a company.

It induces the investors to invest in the shares and debentures of the


company.

It describes the nature, extent and future prospectus of the company.

It maintains all authentic records on the issue and make the directors
liable for the misstatement in the prospectus.

Contents:

The following important matter are included in the prospectus:

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 name, addresses and occupation of directors and managing directors.

The number and classes of shares and debentures issued.

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.

The amount for the minimum subscription.

If the company carrying on business, the length of time of such


businesses.

The estimated amount of preliminary expenses.

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.

If any profit or reserve has been capitalized, the particulars of such


capitalization will be stated in the prospectus.

Prospectus and public offer


The 2013 Act has introduced a new section [section 23] to explicitly
provide the ways in which a public company or private company may
issue securities. This section explains that a public company may issue
securities in any of the following manners:
To public through prospectus
Through private placement
Through rights issue or a bonus issue.
For private companies, this section provides that it may issue securities
through private placement, by way of rights issue or bonus issue.
Section 23 also provides that compliance with provisions of part I of
chapter III is required for the issue of securities to public through
prospectus. For private placement compliance, with the provisions of part
II of chapter III are required.
The 2013 Act also introduces certain changes with respect to prospectus
and public offers aimed at enhancing disclosure requirements as well as
streamlining the process of issuance of securities.
1. Issue of prospectus
Currently, the matters and reports to be included in the prospectus are
specified in parts I and II of Schedule II of the 1956 Act. In the 2013 Act,
the information to be included in the prospectus is specified in section 26
of 2013 Act. The 2013 Act mandates certain additional disclosures:
Any litigation or legal action pending or taken by a government
department or a statutory body during the last five years immediately
preceding the year of the issue of prospectus against the promoter of the
company
Sources of promoters contribution
The 2013 Act has also relaxed the disclosure requirements in some areas.
Examples of certain disclosures not included in the 2013
Act are as follows. Particulars regarding the company and other listed
companies under the same management, which made any capital issues
during the last three years
Export possibilities and export obligations
Details regarding collaboration
The 2013 Act states that the report by the auditors on the assets and
liabilities of business shall not be earlier than 180 days before the issue of
the prospectus [section 26 (1) (b)(iii) of 2013 Act]. The 1956 Act
currently requires that the report will not be earlier than 120 days before
the issue of the prospectus.
2. Variation in terms of contract or objects
The 2013 Act states that a special resolution is required to vary the terms
of a contract referred to in the prospectus or objects for which the
prospectus was issued [section 27 (1) of 2013 Act]. The 1956 Act
currently requires approval in a general meeting by way of an ordinary
resolution. The 2013 Act also requires that dissenting shareholders shall
be given an exit offer by promoters or controlling shareholders [section
27 (2) of 2013 Act].
3. Offer of sale of shares by certain members of the company
The 2013 Act includes a new section under which members of a
company, in consultation with the board of directors, may offer a part of
their holding of shares to the public. The document by which the offer of
sale to the public is made will be treated as the prospectus issued by the
company. The members shall reimburse the company all expenses
incurred by it [section 28 of 2013 Act].
4. Shelf prospectus
The 2013 Act extends the facility of shelf prospectus by enabling SEBI
to prescribe the classes of companies that may file a shelf prospectus. The
1956 Act currently limits the facility of shelf prospectus to public
financial institutions, public sector banks or scheduled banks [section 31
(1) of 2013 Act].

Section 32 Red Herring Prospectus - Indian Companies Act 2013

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.

(2) A company proposing to issue a red herring prospectus under sub-section


(1) shall file it with the Registrar at least three days prior to the opening of the
subscription list and the offer.

(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.

Explanation.For the purposes of this section, the expression "red herring


prospectus" means a prospectus which does not include complete particulars of
the quantum or price of the securities included therein.

Golden rule in prospectus


Prospectus is the basis of the contract between the company and the persons
who incest in the companys shares or debentures. The officers of the company
have knowledge of the companys present status and its prospects in future or
have the means to acquire such knowledge. But the potential investor has no
such knowledge, nor the means to acquire it. It, therefore, becomes the duty of
those who issue the prospectus that they not only projects the companys image
in the right perspective but also makes sure that no vital information which
could be of interest to the potential investors in the companys shares and
debentures is left out from the companys prospectus. it therefore become
important that the prospectus states the basic important facts about the company
with utmost honesty and good faith and that no information that is important is
twisted or partially presented. That is what is refers to as the golden rule for
making a prospectus.
A prospectus means any document describe or issue as a prospectus and
includes any notice, circular, advertisement or other documents inviting
deposits from the public or inviting offers from the public for the subscription or
purchase of shares in or debentures of a day corporate.

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

PROSPECTUS (Companies Act 2013)


Clause (70) of Section 2 of this Bill define prospectus means any document
described or issued as a prospectus and includes a red herring prospectus
referred to in section 32 or shelf prospectus referred to in section 31 or any
notice, circular, advertisement or other document inviting offers from the public
for the subscription or purchase of any securities of a body corporate.

Section 26 deals with matters to be stated in prospectus.

MATTERS TO BE STATED IN PROSPECTUS (SECTION 26):

A prospectus may be issued by or behalf of a public company either with


reference to its formation or subsequently, or by or on behalf of any person who
is or has been engaged or interested in the formation of a public company.

Information in Prospectus:

Every prospectus shall state following information:-


i. names and addresses of the registered office of the company,
company secretary, Chief Financial Officer, auditors, legal advisers, bankers,
trustees, if any, underwriters and such other persons as may be prescribed;

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;

iv. details about underwriting of the issue;

v. consent of the directors, auditors, bankers to the issue, experts


opinion, if any, and of such other persons, as may be prescribed;

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;

viii. capital structure of the company in the prescribed manner;

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;

xi. particulars relating to

1. management perception of risk factors specific to the project;

2. gestation period of the project;

3. extent of progress made in the project;

4. deadlines for completion of the project; and

5. any litigation or legal action pending or taken by a Government


Department or a statutory body during the last five years immediately
preceding the year of the issue of prospectus against the promoter of the
company;

xii. minimum subscription, amount payable by way of premium, issue of


shares otherwise than on cash;

xiii. details of directors including their appointments and remuneration,


and such particulars of the nature and extent of their interests in the company as
may be prescribed; and

xiv. Disclosures in such manner as may be prescribed about sources of


promoters contribution.

Reports with Prospectus:

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.

Other matters in Prospectus:

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.

Delivery of Prospectus with Registrar:

A copy of prospectus shall be delivered to the Registrar for registration signed


by every person who is named as a director or proposed director of the company
or by his duly authorised attorney on or before the date of its publication and
only then it shall be issued by or on behalf of a company or in relation to an
intended company.

Statement of an Expert:

A statement made by an expert shall be included only if expert is or was


engaged or interested in the formation or promotion or management of the
company and has given his written consent to the issue of the prospectus. Such
consent of expert must not be withdrawn by his before the delivery of
prospectus to the Registrar for registration and a statement to that effect shall be
included in the prospectus.

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.

VARIATION IN TERMS OF CONTRACT OR OBJECTS IN


PROSPECTUS (SECTION 27):

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 notice of such resolution to shareholders shall also be published in the


newspapers (one in English and one in vernacular language) in the city where
the registered office of the company is situated. These notices shall clearly
indicate justification for such variation.

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.

Requirement in Deemed Prospectus (Section 25):

Section 26 as applied by Section 25 shall have effect as if

1. it required a prospectus to state in addition to the matters required by


section 26 to be stated in a prospectus

i. the net amount of the consideration received or to


be received by the company in respect of the securities to which the offer
relates; and

ii. the time and place at which the contract where


under the said securities have been or are to be allotted may be inspected;
1. the persons making the offer were persons named in a prospectus as
directors of a company.

VARIANTS OF PROSPECTUS (Companies Act, 2013)


ADVERTISEMENT OF PROSPECTUS (SECTION 30):

When a company issue an advertisement of prospectus, the advertisement shall


specify contents of its memorandum; the objects, the liability of members,
amount of share capital, name of signatories, and number of shares subscribed
for by these signatories and its capital structure.

SHELF PROSPECTUS (SECTION 31):

Any class of company may file a shelf prospectus with the Registrar of
Companies at the stage of first offer of securities.

Shelf prospectus means a prospectus in respect of which the securities or class


of securities included therein are issued for subscription in one or more issues
over a certain period without the issue of a further prospectus.

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.

For any subsequent issue, company shall file an Information Memorandum.


This information memorandum shall contain all material facts relating to (i)
new charges created; and (ii) changes in financial position of the company from
first/previous offer to this second/subsequent offer under this Shelf Prospectus.

It may be possible that a company or any other person has received an


application and advance payment of subscription before any material changes
like new charges or financial position. In these cases, the company or that other
person shall intimate these changes to the applicants. If they express a desire to
withdraw their application, the company or other person shall refund all the
money received as share application money for subscription within fifteen days.
When an offer of securities is made on shelf prospectus, the information
memorandum together with shelf prospectus shall be deemed to be a prospectus.

RED HERRING PROSPECTUS (SECTION 32):

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.

ISSUE OF APPLICATION FORMS AND ABRIDGE PROSPECTUS


(SECTION 33):

Every application form for the purchase of the securities of a company shall be
issued unless the form is accompanied by an Abridge Prospectus.

There is no need for abridge prospectus in case of:

a) Underwriting Agreement; and

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.

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