PROSPECTUS

INTRODUCTIONA document is issued containing detailed

information about the company and an invitation to the public subscribing to the share capital and debentures which is known as prospectus.

If the promoters are confident of obtaining the required capital through private contacts, even a public company may not issue a prospectus.

The promoters prepare a draft prospectus containing required information and this document is known as ‘a statement in lieu of prospectus’.

A prospectus should have the following essentials:

1. There must be an invitation offering to the public.

2. The invitation must be on behalf of the company or intended company.

3. The invitation must to be subscribed or purchase.

4. The invitation must relate to shares or debentures.

Case of Parmathan Nath Sanyal Vs. Kali Kumar Dutt, 1925

Under Section 42, the prospectus must be issued to a public at large and not to any section of the public.

OBJECTIVES FOR ISSUE OF PROSPECTUS It informs the company about the formation

of a new company. It serves as written evidence about the terms

and conditions of issue of shares or debentures of a company.

It induces the investors to invest in the shares and debentures of the company.

It maintains all authentic records on the issue and makes the directors liable for the mis-statement in the prospectus.

CONTENTS OF PROSPETUSSection 26 of the Companies Act provides that every prospectus

must disclose matters specified in Schedule II of the Act. This schedule contains three parts:

PART I – (contains general information)o General information about the issue.o Capital structure of the company.o Terms of present issue.o Particulars of the issue.o Company’s management and projects.o Details of past issues of shares of the company and other listed

companies under same management, made during past three years.

o Outstanding litigations, criminal prosecutions and defaults in statutory and other dues.

o Management perception of risk factors.

PART II – (contains reports to be set out)o General information about consent of directors,

experts, auditors, Company Secretary, etc.o Audited financial statements of last five years.o If the purpose of issue of shares is to purchase

of business or acquiring controlling shares in other company so that it becomes subsidiary.

o Principal terms of loans and assets charged as security

o Statutory information about the issue like minimum subscription, expenses of issue, underwriting, etc.

o Details about property proposed to be purchased, Directors and their remuneration, important contracts, etc.

PART III – (This part gives explanations about requirement of contents of Part I and II)

o If company is working for less than five years, then details about years in which it has worked should be given.

o The accounting details should be certified by Chartered Accountant.

o Financial statements and copies of material contracts and other documents specified in prospectus should be open for inspection and time and place when these will be available for inspection must be specified in the prospectus.

o A declaration that all relevant provisions of Companies Act and guidelines issued by Government have been complied with.

STATEMENT IN LIEU OF PROSPECTUS Must be filed with the registrar of companies

at least three days before first allotment of shares.

Signed by every person who is named therein as a director or proposed director of the company.

Drafted strictly in accordance with the particulars set out in a part I of Schedule II of the Companies Act, 2013.

LIABILITY FOR MIS-STATEMENTS IN PROSPECTUSAccording to Section 65(1) a statement

included in a prospectus shall be deemed to be untrue, if the statement is misleading in the form and context in which it is included.

For this purpose the affected party must prove that:

o The mis-representation was of material fact.o He acted on the misrepresentation, ando He has suffered damages in consequence.

Liabilities for mis-statement in a prospectus:

I- Civil liability:1. Against the company: (a) To rescind the contract to take the

shares. (b) To claim Damages.2. Against the directors, promoters and

experts: (a) Compensation under Section 62. (b) Damages for non compliance (Section

56). (c) Damages under general law.II- Criminal liability

Thank You……