PPT

(Prospectus )
Prospectus -

 Whether you are starting a new company, raising money

through issuing of shares or buying shares of any
company, you are required to have the necessary knowledge
about the prospectus of a company.
 It is based on the prospectus of a company that an investor
decides whether or not to become a shareholder of that
company.
 As a prospectus decides the fate of the company and
shareholders, concealment of any material facts or untrue
statement would attract civil or criminal liability towards the
company.
What is a prospectus under Company Law ?

 A prospectus is a formal document given out by a

company, when such a company wants to sell its securities
to the public, containing all the necessary details about the
sale, including the company’s financial position, the
number of shares offered, types of securities being offered,
etc.
 As per Sec- 2 (70), The Prospectus can be defined as:
 any document described or published as a prospectus”
 It includes notices, circulars, advertisements, or any
document acting as an invitation to offers from the public.
 Shelf prospectus and red herring prospectus are
also considered as a prospectus.
Essentials for a document to be called as a prospectus-

 For any document to be considered as a

prospectus, it should satisfy following conditions.
 The document should invite the subscription to public
share or debentures, or it should invite deposits.
 Such an invitation should be made to the public.
 The invitation should be made by the company or on the
behalf company.
 The invitation should relate to shares, debentures or
such other instruments.
Public Offer and Private
Placement
[ Sec- 23 ]
 A public company may issue securities to public through
prospectus ( to be referred to as “Public Offer” by complying
with the provisions of Part- I of Chapter 3 on Prospectus and
Allotment of Securities). [ Sec.23-41]
 It may also be done through private placement by complying
with the provisions of Part- II of Chapter 3 [ Sec. 42].
 It may also be done through Rights Issue and Bonus Issue by
complying with the provisions of the Act and in case of public
listed company by complying with the provisions of the SEBI Act,
1992.
Explanation to the Sec. 23-

 An Explanation to the section says that a public offer

includes initial public offer or further public offer of
securities to the public by a Company, or an offer for
sale of securities to the public by an existing
shareholder, through issue of prospectus.
Public offer and Private
Placement-
Contents of prospectus ( Matters to
be stated in prospectus) [ Sec. 26]

 For filing and issuing the prospectus of a public company, it must

be signed and dated and contain all the necessary information
as stated under section 26 of the Companies Act,2013:-
 Name and registered address of the office, its secretary, auditor,
legal advisor, bankers, trustees, etc.
 Date of the opening and closing of the issue.
 Statements of the Board of Directors about separate bank
accounts where receipts of issues are to be kept.
 Statement of the Board of Directors about the details of
utilization and non-utilisation of receipts of previous issues.
 Consent of the directors, auditors, bankers to the issue, expert
opinions.
 Authority for the issue and details of the resolution passed for it.
 Procedure and time scheduled for the allotment and issue of
securities.
 The capital structure of the company in the prescribed manner.
 The objective of a public offer.
 The objective of the business and its location.
 Particulars related to risk factors of the specific project, gestation
period of the project, any pending legal action and other important
details related to the project.
 Minimum subscription and what amount is payable on
the premium.
 Details of directors, their remuneration and extent of
their interest in the company.
 Reports for the purpose of financial information such as
auditor’s report, report of profit and loss of the five
financial years, business and transaction reports,
statement of compliance with the provisions of the Act
and any other report.
Filing of copy with the registrar :

 As stated under sub-section 4 of section 26 of the

Companies Act, 2013, the prospectus is not to be
issued by a company or on its behalf unless on or
before the date of publication, a copy of the prospectus
is delivered to the registrar for registration.
 The copy should be signed by every person whose name
has been mentioned in the prospectus as a director or
proposed director or by his duly authorized attorney.
Delivery of copy of the prospectus to the registrar :

 As per section 26(6) of the Companies Act 2013,

the prospectus should mention that its copy has been
delivered to the registrar on its face. The statement
should also mention the document submitted to the
registrar along with the copy of the prospectus.
Registration of prospectus:

 Section 26(7) states about the registration of a

prospectus by the registrar. According to this section,
when the registrar can register a prospectus
when:
 It fulfils the requirements of this section, i.e., section 26
of the Companies Act, 2013; and
 It contains the consent of all the persons named in the
prospectus in writing.
Issue of prospectus after registration:

 Under Sec. 26(8)- If a prospectus is not issued within

90 days from the date from which a copy was delivered
before the registrar, then it is considered to be invalid.
 Contravention of section
 If a prospectus is issued in contravention of the
provision under section 26 of the Companies Act 2013,
then the company can be punished under section
26(9). The punishment for the contravention is:
 Fine of not less than Rs. 50,000 extending up to
3,00,000.
 If any person becomes a party of such prospectus after
knowing the fact that such prospectus is being issued in
contravention of section 26 then he is punishable with
the following penal provisions.
 Imprisonment up to a term of 3 years, or
 Fine of more than Rs. 50,000 not exceeding Rs.
3,00,000.
Variation in terms of contract
or objects in prospectus: Sec-
27
 (1) A company shall not, at any time, vary the terms of a
contract referred to in the prospectus or objects for which the
prospectus was issued, except subject to the approval of, or
except subject to an authority given by the company in general
meeting by way of special resolution:
 Provided that the details, as may be prescribed, of the notice in
respect of such resolution to shareholders, shall also be
published in the newspapers (one in English and one in
vernacular language) in the city where the registered office of
the company is situated indicating clearly the justification for
such variation:
 Provided further that such company shall not use any amount
raised by it through prospectus for buying, trading or otherwise
dealing in equity shares of any other listed company.
 (2) The dissenting shareholders being those shareholders who
have not agreed to the proposal to vary the terms of contracts or
objects referred to in the prospectus, shall be given an exit offer
by promoters or controlling shareholders at such exit price, and
in such manner and conditions as may be specified by the
Securities and Exchange Board by making regulations in this
behalf.
Advertisement of prospectus:
Sec-30

 Where an advertisement of any prospectus of a company is

published in any manner, it shall be necessary to specify therein
the contents of its memorandum as regards the objects, the
liability of members and the amount of share capital of the
company, and the names of the signatories to the memorandum
and the number of shares subscribed for by them, and its capital
structure.
 Types of the prospectus as follows.
 Red Herring Prospectus
 Shelf Prospectus
 Abridged prospectus > Deemed Prospectus
Shelf Prospectus : Sec- 31

 Shelf prospectus can be defined as a prospectus that has been

issued by any company for one or more issues of securities or
class of securities as mentioned in the prospectus.
 When a shelf prospectus is issued then the issuer does not
need to issue a separate prospectus for each offering he
can offer or sell securities without issuing any further
prospectus.
 The provisions related to shelf prospectus has been discussed
under section 31 of the Companies Act, 2013.
 The regulations are to be provided by the Securities and Exchange
Board of India for any class or classes of companies that may file
 a shelf prospectus at the stage of the first offer of securities to
the registrar.
 The prospectus shall prescribe the validity period of the
prospectus and it should be not be exceeding one year. This
period commences from the opening date of the first offer of the
securities. For any second or further offer, no separate
prospectus is required.
 While filing for a shelf prospectus, a company is required to file
an information memorandum along with it.
 Reference- Securities and Exchange Board of India (Issue and
Listing of Non-Convertible Securities) Regulations, 2021
Information Memorandum [Section 31(2)]

 The company which is filing a shelf prospectus is required to file

the information memorandum. It should contain all the facts
regarding the new charges created, what changes have
undergone in the financial position of the company since the first
offer of the security or between the two offers.
 When any company or a person has received an application for
the allotment of securities with advance payment of subscription
before any changes have been made, then he must be informed
about the changes. If he desires to withdraw the application
within 15 days then the money must be refunded to them
Red herring prospectus : (Sec-32)

 Red herring prospectus is the prospectus which lacks the complete

particulars about the quantum of the price of the
securities. A company may issue a red herring prospectus prior
to the issue of prospectus when it is proposing to make an offer
of securities.
 This type of prospectus needs to be filed with the registrar at least
three days prior to the opening of the subscription list or the offer.
The obligations carried by a red herring prospectus are same as a
prospectus. If there is any variation between a red herring
prospectus and a prospectus then it should be highlighted in the
prospectus as variations.
 When the offer of securities closes then the prospectus
has to state the total capital raised either raised by the
way of debt or share capital. It also has to state the closing
price of the securities. Any other details which have not
been included in the prospectus need to be registered with
the registrar and SEBI.
 The applicant or subscriber has right
under Section60B(7) to withdraw the application on any
intimation of variation within 7 days of such intimation and
the withdrawal should be communicated in writing.
Abridged Prospectus :

 The abridged prospectus is a summary of a prospectus

filed before the registrar. It contains all the features of a
prospectus. An abridged prospectus contains all the
information of the prospectus in brief so that it should be
convenient and quick for an investor to know all the useful
information in short.
 Section33(1) of the Companies Act, 2013 also states that
when any form for the purchase of securities of a company
is issued, it must be accompanied by an abridged
prospectus.
 It contains all the useful and materialistic information so
that the investor can take a rational decision and it also
reduces the cost of public issue of the capital as it is a
short form of a prospectus.
Deemed Prospectus:

 A deemed prospectus has been stated under

section 25(1) of the Companies Act, 2013 .
 When any company to offer securities for sale to the
public, allots or agrees to allot securities, the document
will be considered as a deemed prospectus through
which the offer is made to the public for sale. The
document is deemed to be a prospectus of a company
for all purposes and all the provision of content and
liabilities of a prospectus will be applied upon it.
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