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PRESENTATION ON

PROSPECTUS

PRESENTED BY:

Ajay

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MEANING OF Prospectus:

Prospectus is an invitation which involvethe issue of a document setting out the

prospects of the company & the purposefor which the money is required & it isdone by issuing a document calledPROSPECTUS.

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DEFINITION:

ACC TO SEC 2(36) OF THE COMPANIES ACT 1956defines a Prospectus as,µany document described orissued as a prospectus & includes anynotice,circular,advertisement or other documentinviting deposit from the public or inviting offers fromthe public for the subscription or purchase of anyshare in,or debenture of a body corporateµ.

Ingredients of Prospectus

There must be an invitation offering to thepublic.

The invitation must be made by or on behalf of

the co. The invitation must be to subscribe or

purchase

The invitation must relate to share ordebenture

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Provision of Prospectus:

Prospectus to be in writing Subscription Invitation to the public Dating of Prospectus

Signing of Prospectus Issued to the public Registration of prospectus(section 60) Liability for Non-registration of prospectus

Objects of registration of prospectus When prospectus is not required to be issued.

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Issued to public:

Acc to sec. 67(1) of the act the term Publicincludes any section of the public,whetherselected as members or debentures of thecompany concerned or as clients of the person

issuing the prospectus or in any othermatter.However,an offer or invitation shall not betreated as made to public if:-

It does not result,directly or indirectly,in theshares or debentures becoming available forsubscription or purchase other than those

receiving the offer or invitation. The offer can properly be regarded as a domestic

concern of the person making and receiving it.

case reffered

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Contents of prospectus:Acc to sec 56 ´Every prospectus issued by or on

behalf of a company,or by or on behalf of anyperson who is or has been interested in theformation of a company,shall state the

matters specified in part I of schedule II,andset out the reports specified in part II ofthat schedule,and the said part I & II shallhave effect subject to the provisions of partIII of that scheduleµ.

So every prospectus must disclose mattersspecified in schedule II of co. act.Theschedule contain 3 parts part I,II,III.

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Main objects of the co. & signatories of memorandumof association.

Share capital

Managerial personnel

Minimum subscription

Opening of subscription list

Application & allotment money

Share premium

Share or debentures issued for consideration otherthan cash.

Underwriters

Details of acquired property

Matter specified in part I of schedule

II

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Promoter

Material contracts Restrictions given in articles

Capitalisation of profits or reserves

Other important information

PART II OF SCHEDULE II Report by Auditor

Accountant·s report

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Part III of schedule II

It explain the provision & information given inpart I & II of the schedule.These provisions are:

If a co has been carrying out its business for less than 5 years,the final a/c of the co. of thisless than 5 years will be considered for the 5years as required by part II of schedule II.

If a co. has taken some property on lease thenit will be included in this schedule & name opf lessor will also be included.

The reports of schedule II will be given by thataccountant,who is eligible to be an accountantacc to qualifications prescribed by the act.

In the II part¶s report various adjustmentsrelating to profit, loss, assests & liabilities

should also be made.

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Golden rule of golden legacy

in ProspectusAcc. To golden rule a prospectus must tell the

truth, the whole truth & nothing but the truth.The prospectus must give a true picture of 

the co. The Golden rule in prospectus statethat all material facts must be disclosed.Misleading information, even if true, shouldnot be given. All facts which can influencethe decision of the prospective investor must

be disclosed. The true nature of the co.venture should be disclosed.

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What is Mis-statement

A general commendation, even if too highlycoloured, is not a false statement, but tosay that something is expected or has beendone, when it is not so, is a misstatement

of fact.Acc to sec 65 of the co. act, 1956 aprospectus will be deemed to contain anuntrue statement if:

The statement included in the prospectusis misleading in the form & in the context inwhich it is included.

There is an omission from the prospectusof any matter which is calculated to

mislead [sec. 65(1)]

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Who can be sued The company Every director Every promoter Every person who has been authorized to

issue the prospectus

Every person whose name appeared in theprospectus as a proposed director.

Onus of proofAn allottee must prove that-The misrepresentation was of fact

It was in respect of a material fact

He acted on the basis of misrepresentation

He has suffered damages in consequence

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Liability for misstatement in

ProspectusCivil liability Criminal liability

Against thecompany

Against the Directors,Promoters & Experts

To rescind thecontract To claimdamages

CompensationU/S 62

Damage for non-compliance

Damagesunder

general law

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Civil liability for misstatement

When a person has been induced to subscribefor shares or debentures on the faith of astatement in the prospectus that is untrueof material fact, he may have claims:

against the companyAgainst the directors, promoters & other

Remedies against the co.

To rescind the contract

To claim damages

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Rescind the contract

Under contract act a contract induced bymisstatement of any material fact, either innocentor fraudlent, is voidable at the option of theaggrieved party. The contract can be rescinded ifthe following conditions are satisfied:

o prospectus was issued by or on behalf of thecompany

o Statement must be untrueo The statement must be a representation of facts

o Misrepresentation must be of facts & not of lawo It must have induced the shareholder to take theshares

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LOSS OF RIGHT OF

RECESSIONThe right of rescind the contract however, is lostin the following cases: -

Unreasonably delay

Affirmation

Winding up

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Remedies against the Directors,

Promoters ExpertsThe liabilities of above mentioned persons can bestudied under the followings heads: -

1. Compensation U/s 62Defenses available to the directors are: -(i) Withdrawal of consent(ii) Issued without knowledge(iii) Reasonable ground for belief(iv) statement of expert

2. Liability for damages for non-compliance withsec 56

3. Liability under general law

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Criminal liability (sec 63)

Acc to this sec where a prospectus includes anyuntrue statement, every person whoauthorised the issue of the prospectus ispunishable with imprisonment for a term whichmay extend to 2 years or with fine which mayextend to Rs 50000 or with both.

Sec 68 of the act also provides that the followingacts are punishable with imprisonment for aterm extend to 5 years: -

1. Making an application to a company foracquiring or subscribing for any shares thereinunder a fictious name.

2. Making a company to allot or register anytransfer of share therein to any other personin a fictious name.

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Statement in Lieu of Prospectus

(sec 70)Statement in Lieu of prospectus is file with

Registrar in the following cases: -Where it does not issue a prospectus

Where it issue a prospectus but has notproceeded to allot any of the shares offered tothe public for subscription.

The statement in lieu of prospectus must befiled with the registrar at least 3 days beforeany allotment of shares or debentures is made.The statement in lieu of prospectus mustcontain the information required to bedisclosed by schedule III of the act.

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Prospectus by implication (sec 64)

Sometimes the co. instead of issuing theprospectus & obtaining subscription from thepublic, allots the whole issue to a syndicate orcalled an ´Issuing Houseµ. The issuing housethen offers the shares to the public by meansof an advertisement of its own. In other wordscompany could indirectly raise subscriptionfrom the members of the public without issuingan Prospectus. Sec 64 now covers documentissued by the Issuing Houses. Acc to this now

every document or circular issued by theIssuing house by which the offer to the publicis made is deemed to be a Prospectus issued bythe company.

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Minimum subscription

When a public co. invites the public to subscribesfor its shares, it cannot allot shares until theminimum amount stated in the prospectus hasbeen subscribed. This amount stated in theprospectus is known as minimum subscription.

The amount of min. subscription is required to begiven in the prospectus & it must be subscribedfor within 120 days of the issue of theprospectus before the first allotment of sharescan be made.

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