Prospectus and Shares

Ms. Urvi Shah

Assistant Professor
Unitedworld School of Law

Prospectus- Meaning
Prospectus

means a basic document

for raising capital from the Public.
Prospectus means any document
described or issued as a prospectus
and includes any notice, circular,
advertisement or other document
inviting deposits from the public or
inviting offers from the public or
inviting deposits from the public for
subscription or purchase of any
shares or debentures of the Company.

Overview
Whether

private companies need

to issue prospectus?
Essential contents of a
prospectus
Statement in lieu of Prospectus
Misleading contents in the
Prospectus
Criminal Liability
Concept of Shelf Prospectus
Amendment of 2000

Statement in lieu of
Prospectus
Public

Company having share

capital may decide not to
approach the public for securing
the necessary capital.
In such case it will have to file
a statement in lieu of Prospectus
with the Registrar instead of
Prospectus.
Schedule 3 of the Act.
Information more or less similar

Misleading Prospectus and its

consequences
A

prospectus containing false,

misleading,
ambiguous,
fraudulent
statements
of
material facts or suppressing
material facts is termed as
misleading prospectus.
Revocation or Rescission of the
Contract- voidable at the option
of the aggrieved party.
Damages

Criminal Liability (Section

63)
Where

a prospectus contains an
untrue statement every person
authorizing its issue shall be
punishable with imprisonment
for a term not exceeding 2 years
or with fine not exceeding
50,000/- or with both, unless he
proves either:
1)
That the statement was
immaterial or

Shelf Prospectus
Companies

Amendment Act, 2000

Important for developmental financial
institutions like IDBI and ICICI.
Every time issuing a fresh issue of
securities is made costly and time
consuming.
Shelf Prospectus is issued which will be
valid for a period of one year.
Only information memorandum needs
to be filed updating the information
under specific heads.

Kinds of Shares
Equity

Shares
Preference Shares
Sweat Equity Shares
Equity

Shares not preference

shares.
Equity shares are the ordinary
shares which receive dividends
out of profits as proposed by the
Board of Directors.

Preference shares
It

carries Preferential rights in respect of

Dividend
This dividend must paid before the holders of
the equity shares can be paid dividend.
It also carries preferential right in regard to
payment of capital on winding up or
otherwise. It means the amount paid on
preference share must be paid back to
preference shareholders before anything in
paid to the equity shareholders. In other
words, preference share capital has priority
both in repayment of dividend as well as
capital.

Sweat Equity Shares

Sweat

Equity Shares is a class of

shares already issued and such
shares
are
issued
by
the
Company
to
employees
or
directors at a discount or for
consideration other than cash for
providing knowhow or value
addition.

Buy Back of Shares

Buy-Back

is a corporate action in
which a company buys back its shares
from the existing shareholders usually
at a price higher than market price.
Aim of projecting better valuation of
their stockswhen they think it is
undervalued in the market.
Tool to change their capital structure
Intent of projecting better financial
ratios