Corporate Law - A Prospectus

8/10/2019 Corporate Law - A Prospectus

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Unit II


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Meaning of Prospectus

A document inviting the public to purchase the

shares or debentures of the company is called

Prospectus.

A prospective investor would like to know the financialbackground of the company, its activities, its future

programs, nature of investment, risk, etc.

Prospectus of a company shall provide all the requiredinformation.


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Prospectus

The 2013 Act has introduced a new section [sec 23]to explicitly provide the ways in which a public or

private company may issue securities.

This section explains that a company may issue

securities in any of the following manners: To public through prospectus.

To private companies through private placements.

Through rights issue or a bonus issue.


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Shelf prospectus (sec 31)

Shelfprospectus means a prospectus in respect ofwhich, 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.

Once, a shelf prospectus has been issued, there will

be no requirement of any further prospectus for any

subsequent offer of securities issued during thevalidity period.


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For any subsequent issue, company shall filean Information

Memorandum.

This information memorandum shall contain all material facts

relating to

New charges created; and

Changes in financial position of the company from

first/previous offer to this second/subsequent offerunder

this Shelf Prospectus.

SEBIwill prescribe the list of Companies allowed to issue a

Shelf Prospectus

The provision will no more be limited to Public Financial

Institutions, Public Sector Banks or Scheduled Banks


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Red Herring Prospectus (sec 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. It does not have details of either price or no of

shares being offered or the amount of issue.

That is, in case, price is not disclosed, number of

shares and the upper and lower price bands aredisclosed.


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Cont..

It has to carry the same obligation asapplicable to a prospectus.

In case there is any variation between red

herring prospectus and a prospectus shall behighlighted as variation in the prospectus


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Objectives of Registration of

Prospectus

a) To keep an authenticated record of terms and

conditionsof issue of securities and

b) To pinpoint the responsibility of the persons

issuing the prospectus for statements made by

themin the prospectus.


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Registration of Prospectus

A copy of prospectus shall be delivered to the

Registrar for registration,

It has to be signed by every personwho is named asa directoror proposed director of the company or

By his duly authorized agent on or before the date

of its publicationand only then it shall be issued by

or on behalf of a company.


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Essentials of Prospectus

The objectsof the issue;

The purposefor requirement of funds;

The funding plan (means of finance); The summary of the Project Appraisal

Report, if any

The interim use of funds, if any


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Formalities in issuing a prospectus

Prospectus issued by or on behalf of a company must be dated

and its called as date of publication.

Prospectus signed by every director or proposed directoror by

his agent must delivered to the registrar on or before the date of

Publication.

Has to get acknowledgement from SEBI.

Every application formneeds to accompanied by a copy of

prospectus.

It must contain the necessary information to enable the public

to decide whether or not to purchase from the company.


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Information to be stated in the

prospectus

Name 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;

Dates of the opening and closing of the issue, and declaration

about the issue of allotment letters and refunds within the

prescribed time;


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Cont..

A statement by the Board of Directors about the separate bank

account where all money received out of the issue are to be

transferred and disclosure of details of all money including

utilised and unutilised money out of the previous issue in the

prescribed manner;

Details about underwriting of the issue;

Consent of the directors, auditors, bankers to the issue, experts

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


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Cont.. The authority for the issue and the details of the resolution

passed there for;

Procedure and time schedule for allotment and issue

Capital structure of the company

Main objects of public offer, terms of the present issue and

such other particulars

Main objects and present business of the company and its

location, schedule of implementation of the project

Details of directors including their appointments and

remuneration, and such particulars of the nature and extent of

their interests in the company.

Disclosures in such manner as may be prescribed about

sources ofpromoterscontribution


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Cont..

Particulars relating to Management perception 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


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Disclosures of any litigation

Any litigation or legal action pending or taken by anyministry or department of the government or a

statutory authority against any promoter of the issuer

company during the last five years shall be disclosed.

Details of pending litigation involving the issuer,promoter, director, subsidiaries, group companies or

any other person.

Pending proceedings initiated against the issuer

company.

Details of default and non-payment of statutory dues.


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Dematerialization of Securities

As per companies act 2013 sec 29

Every company making public offer shall issue

securities only in Demat form.

As per companies act 1956 sec 68B

IPO beyond an issue size of Rs.10 crores required

to be in Demat form


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Change in terms of Contracts Company has raised money from public through prospectus

shall not vary the terms of contracts except by passing aspecial resolution through postal ballot

Notice of the proposed special resolution shall contain the

following particulars:-

The original purpose, The Total Money raised

The money utilized for the objects of the company stated in

the prospectus

The reason and justification for seeking variations and

The risk factors pertaining to the new objects


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Reports in the Prospectus The reports by the auditors with respect to profits and losses

and assets and liabilities.

The reports relating to profits and losses for each of the five

financial years or where five financial years have not expired,

for each of the financial year immediately preceding the issue

of the prospectus shall. If the company has no subsidiaries, deal with the profits or losses of the

company for each of the five financial years immediately preceding the

year of the issues of the prospectus and

If the company has subsidiaries, deal separately with issuer companys

profits or losses as provided and in addition, deal either As a whole with the combined profits or losses of its subsidiaries

Individually with the profits or losses of each subsidiary


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Statement in Lieu of Prospectus

Where a public company does not invite publicto subscribe for shares , but arranges to get

money from private sources, it need not issue a

prospectus to the public.

In such a case, the promoters are required to

prepare a draft prospectus known as a Statement

in lieu ofprospectus.

Provisions relating to statement in lieu of

prospectusis removed under the companies Act

of 2013.


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Membership in a company

Members or Shareholders of a company are

the persons who collectively constitute the

company as a Corporate entity.

The term member, Shareholder and

Holder of share are used interchangeably.

In case of Unlimited company or a Company

limited by guarantee, a member cannot be a

shareholder, for such a company may not have

share capital


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Members and ShareholderDistinction

Share Capital Bearer of a Share Warrant

Legal representative of a deceased member

Who can become a member?

Any person competent to contract (Sec 11 of Indian contract act 1872).This is subject to provision of the MoA & AoA, of the company.

The articles may provide that following persons cannot become members

Minor

Partnership firm

Company

Insolvent

Foreigner


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How to become a Member?

1. Membership by subscription

Subscribers to the MoA of a company are deemed tohave agreed.

Names are entered as members in the register ofmembers

2. Membership by application and registrationa) By application and allotment

b) By transfer

c) By successiond) Agreement to be in writing

3. Membership by beneficial ownership

4. Membership by qualification shares


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Cessation of MembershipA person may cease to be a member

Act of the parties

Operation of law

Cessation of members by act of the parties

a) If he transfers his shares

b) If his shares are forfeited

c) If the companies sells his shares under some provision inits articles

d) If he rescinds the contract to take shares on the grounds ofmis-representation in the prospectus

e) If redeemable shares are redeemedf) If he surrenders his share, where surrender is permitted

g) If share warrants are issued to him in exchange of fullypaid shares.


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Cont

2. Cessation of membership by operation of law

a) Insolvency

b) Death

c) Sale of shares

d) Winding up of the Company-surplus assets

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Corporate Law - A Prospectus

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