Monday, 9 December 2019

Unit 9: Prospectus

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                                                              Unit 9: Prospectus




A public company may also decide not to invite public to subscribe to its share capital and arrange its capital privately as in the case of private company.

Under such circumstances, the public company is required to submit a statement in lieu of prospectus with the Registrar of Companies at least three days before the allotment of shares is made.


The payment must be strictly by way of ‘commission’ and not merely a device to issue shares at a discount.


The rate of commission and the number of shares and debentures which the underwriters have agreed to subscribe for a ‘commission ‘should be disclosed in the prospectus.


The names of the underwriters and the opinion of the directors that the resources of the underwriters are sufficient to discharge their obligations must be disclosed in the prospectus.


The amount of authorised capital and its subdivision into equity and preference share capital is given in the Memorandum of Association which is prepared before the certificate of incorporation is obtained.

Corporate Legal Framework
A prospectus, as per s.

2(36), means any document described or issued as prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate.


Every prospectus submitted to Stock Exchange Board of India (SEBI) for vetting shall, in addition to the requirements of schedule II to the Act, contain/specify certain particulars as are announced from time to time.


Any variation between the information memorandum and the red-herring prospectus shall be highlighted as variations by the issuing company.


Every variation as made and highlighted under (iv) is to be individually intimated to the persons invited to subscribe to the issue of securities.


In the event of the issuing company or the underwriters to the issue have invited or received advance subscription by way of cash or post-dated cheques or stock-invest, the company or such underwriters or bankers to the issue shall not Ancash such subscription moneys or post-dated cheques or stock invest before the date of opening of the issue, without having individually intimated the prospective subscribers of the variation and without having offered an opportunity to such prospective subscribers to withdraw their application and cancel their post-dated cheques or stock-invest or return of subscription paid.


The prospective shareholders are entitled to all true disclosures in the prospectus.

The persons issuing the prospectus are bound to state everything accurately and not omit material facts.


Certain prescribed particulars: In regard to the company and other listed companies under the same management which made any capital issue during the last 3 years.

Financial Information: reports of the auditors of the company with respect to its profits and losses and assets and liabilities, and the dividends paid during the five financial years immediately preceding the issue of prospectus.

Outstanding litigations: relating to financial matters or criminal proceedings against the company or directors under Schedule XIII.
Prospectus: A document shall be called a prospectus if it satisfies two things: 1.

It invites subscription to share or debentures or invites deposits.


The aforesaid invitation is made to the public.

Shelf-prospectus: A shelf-prospectus means a prospectus issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus.

Small depositor: A small depositor is one who has deposited, in a financial year a sum not exceeding ` 20000 in a company and includes his successors, nominees and legal representatives.

Sub-underwriting: Every underwriter has a certain limit up to which he would go in for taking risk by entering into an underwriting contract.

Underwriting: consists of an undertaking by some person or persons that if the public fails to take up the issue, he or they will do so.


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