Presented By :

Group-2
Section F
 As defined in Section 2(36) of the Companies Act it means
any document issued to invite deposits from the public or
inviting offers from the public for the subscription or
purchase of any shares in, or debentures of a body corporate.
 Can be issued as , notice, circular, advertisement or other
document
 It is not an offer in itself but an invitation to make an offer.
 Applicable only when accepted by the company

Golden Rule of Prospectus

 There should be full frank and honest disclosure of all facts in
the prospectus. These facts should be scrupulously accurate.
There should not be any error of commission (mis-statements)
nor any error of omission (non disclosure of relevant facts).
 Dating of prospectus – Prospectus must be dated
 Registration of prospectus - the prospectus must not
be issued more than 90 days after the date on which a
copy of it is delivered to the Registrar for Registration
 Approval of prospectus by various agencies : The
draft prospectus has to be approved by various
agencies before filing. in the prospectus.
 The lead financial institution underwriting the issue,
if applicable: Although the prospectus is vetted by
SEBI to ensure adequacy of disclosures but SEBI does
not take any responsibility for the correctness of the
statements made or opinions expressed.
 Prospectus must be approved from following
authorities
 All the lead managers to the issue.
 Each of the stock exchanges where the shares
of the company are listed and where the
shares/debentures are proposed to be listed.
 The lead financial institution underwriting the
issue, if applicable.
 As per Section 56 of the Companies Act,1956, the issue of a
Prospectus is not necessary in the following cases:
 When shares or debentures are offered to existing holders of
shares or debentures
 When the issue relates to shares or debentures uniform in all
respects with shares or debentures previously issued and
dealt in or quoted in a recognized stock exchange
 Where a person is bona fide invited to enter into an
underwriting agreement
 Where shares are not offered to the public.
 When shares/debentures are offered to 50 or less persons.
 Cases :
• Nash v Linde
• Pramatha Nath Sanyal Vs Kali Kumar Dutt
 Matters specified in part I of Schedule II –General information
like name and address of the company, its objects, number and
classes of shares, particulars of directors, and auditors,
underwriters, details regarding the securities being issued,
outstanding litigation, management perception of risk factors and
details on any issue within past 3 years .
 Matters listed in Part II of schedule II – Reports by the auditors
and the accountants, consent of directors, auditors, auditors etc.
and some other statutory information.
 Matters given in Part III of schedule II – This would include:
• For a company carrying on business for less than 5 financial years,
then the reference is to the number of financial years for which the
business has been carried on.
• If the prospectus is issued more than 2 years after the date at
which the company is entitled to commence business, particulars
and details of preliminary expenses need not be given
• Statements by experts
 The term expert includes an engineer, a valuer, an accountant,
and any other person whose profession gives authority to a
statement made by him
 Will be liable by reason of having given his consent under
section 58 to the issue of the prospects containing a statement
made by him
 Expert is not liable if he can prove that :
 He withdrew it in writing before the delivery of a copy of the
prospectus for registration, or.
 After the delivery of a copy of the prospectus for resignation but before
allotment, he on becoming aware of the untrue statement withdrew his
consent in writing and gave reasonable public notice thereof and the
reason therefore.
 He was competent to make the statement and he had reasonable
ground to believe and did up to the time of allotment of the shares or
debentures believe, that the statement was true. (Section 62 (3).
 Any person who takes shares on the faith of
statement of facts contained in a prospectus can
rescind the contract if those statements are false
or untrue.
 A Statement is said to be untrue if
 The statement is misleading in the form and context in
which it is included.
 Where the omission from a prospectus of any matter is
calculated to mislead
 Cases : Royal Mail Steam Packet Company
 Rex v. Kylsant
 Director will not be liable If he can prove that
 He (having consented to become a director) had withdrawn his consent
to become a director before the issue of the prospectus.
 Prospectus was issued without his authority or consent; and that on
becoming aware of its issue, he forthwith gave reasonable public notice
of the issue having been made without his knowledge or consent.
 After the issue of the prospectus and before allotment there under he,
on becoming aware of any untrue statement therein, had withdrawn
his consent and given a reasonable public notice of the withdrawal and
of the reasons therefore; or
 Untrue statement, purporting to be a statement by an expert or
contained in a report or valuation of an expert was a correct and fair
representation of the expert’s statement and he had reasonable ground
to believe and, until issue of prospectus, did believe that the expert was
competent to make it and the expert had given and had not withdrawn
his consent to the issue of the prospectus and had not withdrawn it
before delivery of a copy of the prospectus for registration; and
 Untrue statement, arising from the statement made by an official
person or from the public official documents was a correct and fair
representation or correct copy or correct and fair extract of the
document. (Case : Derry vs. Peek )
 It is a contract entered into between the
company and certain parties (called
underwriters) before the shares or debentures
are offered to the public for subscription.
 The underwriters expose themselves to a great
risk in ‘placing’ the shares before the public.
And in return for this exposure to the risk the
underwriters get commission.
Conditions to be satisfied:
 The payment of commission authorized by the articles.
 The names and addresses of the underwriters and the
number of shares or debentures underwritten by each
of them should be disclosed in the prospectus.
 The amount of commission should not exceed, in the
case of shares, 5% of the
 Price at which the shares have been issued or the
amount or rate authorized by the articles whichever is
less, and in the case of debentures it should not exceed
2-1/2%.
 A copy of the contract for the payment of the
commission should be delivered to the registrar along
with the prospectus or the statement in lieu of
prospectus for registration.
 In order to avoid the rigorous requirements of prospectus, one
practice was to issue shares to another person. Such other person
(often called ‘Issue House’) would then make further offer of sale of
their shares to public by advertisements, etc.
 offer of sale’ or advertisement of such ‘Issue House’ will be deemed
to be prospectus issued by the company. This is called deemed
prospectus.
 
 The ‘offer of sale’ by Issue House will not be considered as
‘Prospectus’ only when
 Company receives full consideration in respect of shares/debentures allotted
to Issue House or agreed to be allotted to them.
 Offer of sale is made at least 6 months after the shares were allotted to them
 Additional information to be stated in such documents are
 Net amount of consideration received or to be received by the company in
respect of shares or debentures to which offer relates and
 Place and time at which the contract under which the shares or debentures
have been allotted or are to be allotted may be inspected [Section 64(3)].
 As per Section 2(1) of the Companies
(Amendment) Act, 2000 “abridged prospectus
means a memorandum containing such salient
features of a prospectus as may be prescribed.”
 Necessary for issuing application forms for
shares or debentures.
 The abridged prospectus and the share
application form should bear the same printed
number.
 Not required in following cases
 Where the offer is made in connection with a bona fide
invitation to a person to enter into an undertaking
agreement with respect to the shares or debentures.
 Where the shares or debentures are not offered to the
public.
 Where the offer is made only to the existing members
or debenture holders of the company.
 Where the shares or debentures offered are in all
respects uniform with shares or debentures already
issued and quoted on a recognized stock exchange.
 Where a prospectus is issued as a newspaper
advertisement,
 Public companies does not invite public to
subscribe for its shares, but arranges to get
money from the private sources, it need not
issue a prospectus to the public.
 In such cases the promoters are required a draft
prospectus known as “statement in lieu of the
prospectus”.
 The statement in lieu of prospectus must be
filed with the Registrar at least three days prior
any allotment of shares or debentures are
made.
 ‘Shelf Prospectus’ means a prospectus issued by any
financial institution or bank for one or more issues
of the securities or class of securities specified in that
prospectus.
 Any public financial institution, a public sector bank
or scheduled bank whose main object is financing,
shall file a shelf prospectus.
 A company filing a shelf prospectus with the
Registrar shall not be required to file prospectus
afresh at every stage of offer of securities by it
within a period of validity of such shelf prospectus.
 It shall be required to file an information
memorandum.
 An information memorandum shall be issued to the
public along with shelf prospectus
 Issued to the public prior to filing of a prospectus.
 Bound to file a prospectus prior to the opening of
the subscription lists and offer as red-herring
prospectus,(RHP) at least three days before the
opening of the offer.
 Both IM & RHP shall carry same obligations as are
applicable in the case of a prospectus.
 Any variation between IM & RHP shall be
highlighted as variations by the issuing company.
 Each variation should be individually intimated to
the persons invited to subscribe to the issue of
securities.
 
 The issuing company or the underwriters to the issue,
in case of received advance subscription by way of
cash or post-dated cheques or stock invest, shall not
encash such subscription moneys or post-dated
cheques or stock invest before the date of opening of
the issue.
 The applicant shall exercise his right to withdraw
from the application on any intimation of variation
within seven days from
 Upon the closing of the offer of securities, a final
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
were not complete in the red-herring prospectus shall
be file.
 A prospectus which does not have complete
particulars on the price of securities and the
quantum of securities offered.
 A company making an issue of securities may
circulate information memorandum to the public
prior to filing of prospectus.
 Total capital raised whether by way of debts, or
share capital and the closing price of securities and
any other details as were not complete in red-
herring prospectus should be included in final
prospectus.
 The prospectus will be filled with ROC and also
with SEBI in case of listed company.
THANK YOU