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Any company inviting the public to subscribe the securities or arranging

for an offer for sale of its existing securities has to issue a ³Prospectus´ or a
³Letter of Offer´ relating to the issue.

Section 2 (36) defines a Prospectus as ³any document described or issued

as a prospectus and includes any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any shares in, or
debentures of , a body corporate.´
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ïhe prospectus is the basis of contract between the company and the
person who ³buys´ the shares on the strength of the prospectus. Section 55 to 68A
of the companies Act, 1956 deals with the several aspects relating to the prospectus.

ïhere are certain mandatory disclosures which have to be made in the

prospectus. ïhe mandatory disclosures which have to be made in the prospectus
include in schedule II of the companies Act, 1956 and should fulfill the SEBI
guidelines, 2000.

In order to enable the potential investors to take a well informed decision in

the matter, the Companies Act 1956 Under section 44; 56; 60 to 65 and 603 to 608
and schedule II, III and IV spells out in some details the Act sets matter to be
included in the prospectus/ Letter of offer which covers:
a) ïhe history and the business of the company and its prompters and management

b) Particulars of the projects including its costs and means of financing.

c) Business prospects.

d) Status and profitability.

e) Audited accounts, for a period of five years and the data of issue of prospectus.
letter of offer being not than 120 days.

f) Materials contracts.

g) Particulars of the securities to be issued.

h) Information about the issue, etc.

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1. ïo bring the notice of public that the new company has been formed.

2. ïo inform the public about the prospectus of the company, so that the public
may subscribe for the shares and debentures of the company.

3. ïo make sure that the directors of the company accept responsibility of the
statements in the prospectus.

4. ïo preserve an authentic record of term and conditions on which the public

have been invited to subscribe for its shares and debentures.

5. ïo comply with the statutory requirements i.e. filing with the registrar before
issuing to the public.

6. ïo protect the public against any mis-statement by the directors. ïhis gives
confidence to the public to subscribe for shares and debentures of the
company.
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1. Name and address of its registered office.
2. History and main objects of the company.
3. Subsidiaries of the company, if any.
4. Consent of the central Government obtained for present issue, if required.
5. Reference to listing of shares on the stock exchange.
6. Declaration about the refund of application money if minimum subscription is
not received.
7. Opening and closing date of the issue.
8. Name and address of the auditors and lead manager.
9. Rating obtained from CRISIL or any rating agency in respect of proposed
preference share issue, if necessary.
10. Name and address of the Underwriters and the amount underwritten by them.
11. Consent of directors, Auditors, Solicitors, bankers, and others to the present
issue.
12. Name and address of the company secretary, legal advisors, lead managers,
auditors, bankers to the company, bankers to the issues and brokers to the issue.
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1. Authorised, issued, subscribed called up and paid-up share capital.
2. Amount of the present issue giving details as to on reservation for
preferential allotment to employees, promoters, etc.

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1. ïerms of payment, i.e. money to be paid on application allotment,
etc.
2. Rights of the shareholder.
3. How to apply, application form and mode of payment.
Any special tax benefits for the company and its shareholders,

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1. Objects.
2. Projects Costs.
3. Means of financing.
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1. Promoters and their background.
2. Name, address, description and occupation of managers,
managing director and other director and whole time director.
3. Details of allotment, remuneration and borrowing powers of
director and whole time directors.

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1. Location of the project and details about it.
2. Present positions and future prospects.
3. Nature of product.

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1. Subject to Foreign Exchange rate fluctuations.
2. Difficulty in availability of Raw Materials.
3. Subject to change in government policies, etc.
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1. Minimum subscription.
2. Expense of issue, payable to advisors, managers to the issue, etc.
3. Particulars of previous public or right issue, if any during past five years.
4. Issue of shares otherwise than for cash.
5. Debenture and redeemable Preference shares and other instrument issued by
the company issued within 2 years preceding the date of prospectus.
6. Details of purchase of property and the names and address of the vendors from
whom the property is acquired or to be acquired.
7. Rights of members regarding voting, dividend on shares, etc.
8. Restriction, if any, on transfer of shares.
9. Revaluation of assets, if any, during the past five years.
10.Reference to inspection of balance sheet, Profit and loss account and other
documents.

Any other required information.

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A prospectus shall contain the following disclaimer clause in bold capital

letters:

"It is to be distinctly understood that submission of offer document to

SEBI should not in any way be deemed or construed that the same has been cleared
or approved by .. SEBI does not take any responsibility either for the financial
soundness of any scheme or the project for which the issue is proposed to be made
or for the correctness of the statements made or opinions expressed in the offer
document. Lead Merchant Banker, //////////////has certified that the
disclosures made in the offer document are generally adequate and are in
conformity with SEBI (Disclosures and Investor Protection) Guidelines in force for
the time being. ïhis requirement is to facilitate investors to take an informed
decision for making investment in the proposed issue.
It should also be clearly understood that while the Issuer Company is primarily
responsible for the correctness, adequacy and disclosure of all relevant information
in the offer document, the Lead Merchant Banker is expected to exercise Due
Diligence to ensure that the Company discharges its responsibility adequately in
this behalf and towards this purpose, the Lead Merchant Banker
_______________________ has furnished to SEBI a Due Diligence Certificate
dated ________________ in accordance with SEBI (Merchant Bankers)
Regulations 1992
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1. A company can¶t come out with public issue unless draft Prospectus is filed
with SEBI.
2. Prospectus has to be filed by the Merchant Banker.
3. After receiving Prospectus SEBI Scrutinizes it and may suggest changes
within 21 days.
4. ïhe company can come out with Public Issue any time within 365 days from
date of the letter from SEBI or if no letter is received form SEBI, within 365
days from the date of expiry of 21 days of submission of prospectus with
SEBI.
5. Filing of prospectus with the regional office of SEBI falling under the
jurisdiction in which registered office of the company is situated if issue size
is up to Rs.20 crores.
6. Filing of prospectus at SEBI¶s Mumbai office if issue size is more than Rs.20
crores.
7. Prospectus to be filed with the concern Stock Exchange along with the
application for listing of securities.
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1. Direct and simple method for marketing securities.

2. Economical.
3. Wide coverage.
4. Brings decentralization of ownership.
5. Direct sale to the investors.
6. Convenient to stable companies.

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1. It lacks certainty.
2. Less support from the middle class investors.
3. It is a time consuming process.
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1. Letter of Offer or Prospectus.

2. Letter of Rights.

3. Statement in lieu of Prospectus.

4. Shelf Prospectus.

5. Draft Prospectus.

6. Red Herring Prospectus.