Meaning of prospectus:
As per Sec 2(70) of the Companies Act, 2013 prospectus means any document
described or issued as a prospectus and includes
a) A red herring
prospectus referred to in section 32 of the Companies Act, 2013 or
b) Shelf prospectus
referred to in section 31 of the Companies Act, 2013 or
c) Any notice, circular,
advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate.
Important conditions to
be satisfied:
a) There must be an
invitation to the public in written form (i.e. Oral invitation or advertisement
in T.V. or film is not treated as prospectus.)
b) The invitation must be
made by or on behalf of the company.
c) Application for
purchase of securities constitutes an offer by the subscriber to the company
and it is only on its acceptance by the company that a binding contract comes
into existence.In terms of Indian Contract act, 1872, Prospectus is an
invitation to offer (i.e not offer in itself).
Role of prospectus:
a) The prospectus is the
main document on the basis of which the prospective investors decide whether or
not they should subscribe to the securities offered by the company.
b) The information in the
prospectus is vital in every material aspect and any misstatements or concealment
of material facts may result in huge losses to the investing public.
c) Therefore, section 34
and 35 of the Companies Act, 2013 imposes both criminal liability and civil liability
for untrue and misleading statements in the prospectus
Section 26(1) of the Companies
Act, 2013 provides for the matters to be stated and the information to be given
in the prospectus.
Contents of the
prospectus: Every prospectus issued by or on 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, shall be dated and signed and shall—
(Hint to learn contents: As I told you in the class, learn it like 1. General Information (divide it in four parts-Name and address etc, Declaration ,Statements and Consents etc, Objects etc, Project Particulars. Now Second is Finacial Information which includes Auditor Report of P&L, Assess & Liability and Usage of funds. Third is Statutory Information which includes Declaration)
1. State the following
information, namely:—
a) Names & addresses
of registered office and the other persons (like company secretary, Chief Financial
Officer, auditors, legal advisers, bankers, trustees, underwriters and such
other persons as prescribed under the rules).
b) Dates of the opening
and closing of the issue, and declaration made by Board or the committee about
the issue of allotment letters and refunds of the application money within the 15
days from the closure of the issue or such lesser time as may be specified by
SEBI;
c) 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
(utilized/un-utilized) out of the previous issue in the prescribed manner;
d) Details of the
underwriters and the amount underwritten by them (the names, addresses, telephone
numbers, fax numbers and e-mail addresses);
e) Consent of directors,
auditors, bankers to the issue, expert’s opinion if any, and of such other persons,
as prescribed under the rules;
f) Authority for the
issue and the details of the resolution passed therefor;
g) Procedure and time
schedule for allotment and issue of securities;
h) Capital structure of
the company in the prescribed manner;
i) Main objects of public
offer, terms of the present issue and such other particulars as may be prescribed;
j) Main objects and
present business of the company and its location, schedule of
implementation of the
project;
k) Other particulars
relating to—
• management view of risk
factors specific to the project;
• gestation period of the
project;
• extent of progress made
in the project;
• deadlines for
completion of the project; and
• 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;
l) Minimum subscription,
amount payable by way of premium, issue of shares otherwise than on
cash;
m) 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
n) Disclosures of the
sources of promoter’s contribution; in such manner as may be prescribed;
2. Set out the following
reports for the purposes of the financial information, namely:
a) 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.
b) 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:
However where a company
with respect to which a period of five years has not past from the date of
incorporation – there such a prospectus shall set out the reports relating to
profits and losses for each of the financial years immediately preceding the
financial year of the issue of prospectus including such reports of its
subsidiaries;
c) reports made by the
auditors upon the profits and losses of the business of the company for each of
the 5 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 180 days before the issue of the prospectus:
Whereas, in case of a
company with respect to which a period of 5 years has not passed from the date
of incorporation, the prospectus shall set out the reports made by the auditors
upon the profits and losses of the business of the company for all financial
years from the date of its incorporation, and assets and liabilities of its
business on the last date before the issue of prospectus; and d) Reports about
the business or transaction to which the proceeds of the securities are to be applied
directly or indirectly;
3. 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 thereunder; and
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