PROSPECTUS presentaton and improtance.ppt

prospectus

1. PROSPECTUS

Under the Guidance of
Mrs. Namita
Assistant Professor
Submitted by
Gedda Chaya Deepika
LL.M. (2024-2025)
PRN NO: 24010341003

2. D
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Section 2(70) of the Act defines a prospectus
as
“any document described or issued as a
prospectus and includes a red herring
prospectus referred to sec.32 or shelf prospectus
referred to in section 31 or any notice, circular,
advertisement or other document inviting
deposits from the public or inviting offers from
the pubic for the subscription or purchase of any
shares in, or debentures of a body corporate .”
The definition of prospectus now specifically
provides that “Red Herring or Shelf Prospectus”
will also be treated as prospectus. The scope of
definition has been broadened to include
securities instead of only shares or debentures.

3. In other words, a prospectus means any invitation
issued to the public inviting it to deposit money
with the company or to take shares or debentures
of the company. Such invitation may be in the
form of a document or a notice, circulation,
advertisement etc.
Any document to be called a prospectus must have
the following ingredients:
(a)There must be an invitation offering to the public;
(b)The invitation must be made by or on behalf of the
company or in relation to an intended company ;
(c)The invitation must be to subscribe or purchase;
(d)The invitation must relate to shares or debentures.

4. T
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P
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1. Red Herring Prospectus
2. Shelf Prospectus
3. Deemed Prospectus
4. Abridged Prospectus

5. R
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P
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•A red herring prospectus, as a first or preliminary
prospectus, is document submitted by a company
(issuer) as part of a pub offering of securities (either
stocks or bonds). Most frequentiy associated with an
initial public offering (IPO), (IPO), this document, like
the PO), this do previously submitted Form S-1
registration statement, must be filed with the Securities
and Exchange Commission (SEC).
•A red herring prospectus is issued to potential
investors, but does not have complete particulars on the
price of the securities offered and quantum of securities
to be issued. The front page of the prospectus displays
a bold red disclaimer stating that information in the
prospectus is not complete and may be changed, and
that the securities may not be sold until the registration
statement, filed with the market regulator, is effective.

6. Potential investors may not place buy orders for
the security, based solely on the information
contained within the preliminary prospectus.
Those investors may, however, express an
"indication of interest" in the offering, provided
that they have received copy of the red herring at
least 48 hours prior to the public sale. After the
registration statement becomes effective, and the
stock is offered to the public, indications of
interest may be converted to purchase orders, at
the buyer's discretion. The final prospectus must
then be promptly delivered to the buyer.

7. D
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P
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Requirement of prospectus are very rigorous
under the companies Act. In order to avoid the
issued of prospectus, one practice was to issue
shares to another person. Such another person
(often called Issue House), would then make
further offer of sale of these shares to public by
advertisement etc. This was one of the ways to
avoid rigours of prospectus.
Section 25 of the companies Act lays down that
any document by witch the offer or sale of
securities to the public is made shall for all
purposes be treated as prospectus.

8. A company is deemed (presumed) to have
allotted or agreed to allot shares or debentures to
issue House for further sale if (a) such issue House
makes offer for sale of debentures or shares within
6 months after the shares/debentures were allotted
to them or agreed to be allotted to them or (b) On
the date of offer of issue House, whole
consideration in respect of shares or debentures was
not received by the company. In short, the ‘offer of
sale’ by issue house will not be considered as
‘prospectus’ only when (a) company receives full
consideration in respect of shares/debentures and
(b) The ‘offer for sale’ Is made at least 6 months
after the shares were allotted to it. [section25(2)].

9. S
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P
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(
S
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C
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3
1
)
Sometimes, securities are issued in stages
spread over a period of time, particularly in
respect of infrastructure projects where issue size
is large as huge funds have to be collected. In
such case, filling of prospectus each time will be
very expensive. So a provision of ‘shelf
prospectus’ has been made vide section 31 of the
companies Act, 2013. The advantage is that at
each stage of offer of securities during validity
of shelf prospectus, filling of prospectus is not
required.

10. The term ‘shelf prospectus’ means a
prospectus in respect of which 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.
The company shall also file information
memorandum on new charges created, if
any change in financial position with the
registrar of companies prior to the issue of
a second or subsequent offer under shelf
prospectus. [sec.31(2)]

11. ABRIDGED PROSPECTUS
Section 33 of the companies Act provides
that every form of application issued for the
purchase of any securities of a company
shall be accompanied by an abridged
prospectus. According to the companies Act,
“abridged prospectus” means a
memorandum containing such salient
features of a prospectus as may be specified
by the securities and Exchange Board by
making regulations in this behalf.
1.Variation in term of contract or objects in
prospectus.
2.Public offer of securities to be in
dematerialized form.
A
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12. A
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Section 30 of the companies Act provides
that where an advertisement of any
prospectus of a company is published, it shall
specify the contents of memorandum as
regards to the objects, the liability of
members and the amount of share capital, the
names of the signatories and the number of
shares subscribed by them and also its capital
structure.
Offer to the public. A document will be
treated as a prospectus only when it invites
offers from the public.

13. W
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R
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Q
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D
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B
E
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S
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D
(
S
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.2
6
)
The issue of a prospectus by a company is
not necessary in the following case.
(1)When an offer is made in connection
with a bonafide invitation to a person to
enter into a underwriting agreement with
respect to shares or debentures.
(2)When the shares or debentures are not
offered to the public.
(3)Where the offer is made only to exiting
members or debentures holder of the
company with or without a right to
renounce. e.g. when shares are placed
privately to less than 50 persons.

14. (4)Where the shares or debentures offered are
in all respects uniform with shares or debentures
previously issued and dealt in or quoted on a
recognised stock exchange.
(5)Where invitation to the public for
subscription to the shares or debentures of a
company is made in the form of newspaper
advertisement.(sec.30).
(6) A private company is not required to issue
prospectus.[sec.2(35)]

15. L
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R
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1.Dating of prospectus (sec 26)
A prospectus issued by a company
must be dated. Section 26 further
provides that the date on the
prospectus shall, unless contrary is
provide, be taken as the date of the
publication of the prospectus. This
ensures a prime facie evidence of the
date of its publication. However, this
evidence may be rebutted by a
contrary evidence.

16. 2. Registration of prospectus
(sec.27(7))
A.Nature.
B.Time limit.
C.Signatures.
D.Date of issue of prospectus.
E.Contents.
F.Enclosures.
G.Registration.
H.Penalty for non-registration of prospectus.
I.Opening of subscription list.

17. W
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R
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R
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R
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(
S
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.2
6
)
The registrar can refuse to register a
prospectus if:
A.It is not dated;
B.It does not comply with the
requirements of as to the matter and
repots to be set out in it;
C.It contains statements or repot of
experts engaged or interested in the
formation or promotion or
management of the company.

18. C
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A prospectus is the most important
document since the intending investors
base their decisions on the facts and
figures furnished in the prospectus. It is
the window through which a prospective
investor can look into the soundness of a
company’s venture. In order to protect
the interests of the investing public
against the frauds of the promoters, the
companies Act requires every company
issuing a prospectus to observe a large
number of regulation. Failure to observe
them is made punishable with fine or
imprisonment or both. Hence, utmost
care should be taken in drafting a
prospectus.

19. (
A
)

M
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Names and address.
Dates of the opening and closing.
A statement.
Detail about underwriting.
Consent of the directors.
The authority for the issue.
Procedure and time.

20. Capital structure.
Main objects.
Main objects and present business.
Particulars.
Minimum subscription.
Detail of directors.
disclosures

21. (
B
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R
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The prospectus must set out the following
reports for the purposes of the financial
information namely:
Reports by the auditors.
Reports relating to profits and losses.
Reports made by the auditors upon the
profits and loses of the business.

22. (
C
)


D
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The prospectus shall make a declaration
about the compliance of the provisions of
this Act and a statement to the effect that
nothing in the prospectus in contrary to the
provisions of this Act, the securities
Contracts (Regulation) Act, 1956 (42 of
1956) and the Securities and Exchange Board
of India Act, 1992 (15 of 1992) and the rules
and regulation made there under.
The prospectus shall also state such other
matters and set out such other reports, as may
be prescribed.

23. B
O
O
K

B
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L
D
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Book Building is defined to mean a process
by which demand for the securities proposed
to be issued by a body corporate is elicited
and built-up and the price for such securities
is assessed for the determination of the
quantum of such securities to be issued by
mean of a notice, circular, advertisement,
document or information memorandum or
other document.
thus, in case of a public issue through the
process of book-building, though the total
size of the issue is known, the number of
shares is not known. It is because the price at
which shares will be allotted is not known,
it’s determined through the process of book-
building only.

24. L
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F
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M
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Golden rule as to the framing of prospectus.
A prospectus constitutes the basis of the
contract between the company and the person
who purchase securities. The persons who are
behind the company have all the knowledge or
means of knowledge as to the present position
and future prospects of the enterprise and the
investing public has none. It is but fair that the
former should not only disclosed all the
matters within their knowledge relating to the
enterprise, which might affect the investing
mind but should state them accurately,
correctly and unambiguously. A prospectus
must, therefore, tell the truth the whole truth
and nothing but truth. Also it must not conceal
any fact which ought to be disclosed.

25. W
H
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I
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U
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T
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S
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It is necessary to find out as to what
constitutes an untrue statement. Whether a
statement is untrue or not is to be judged by
the context in which it appears and the
totality of impression it would create. A
statement may be false, not only because of
what it states but also because of what it
conceals or omits. If taking the whole
prospectus together, there was really a
misrepresentation of fact, the contract may
be set aside, though each statement by itself
is literally true. This leading case on this
point is
Greenwood v. leather shod wheel Co.(1900)

26. W
H
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B
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S
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D
?
Where a person has bought shares on the faith of
a prospectus which is mis-leading because of a
mis-statement in or an omission from the
prospectus, he may have a legal remedy against
in or any of the following:
Liability for
mis-statement
In a prospectus
Civil
liability
Criminal
liability

27. C
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L
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[
S
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3
5
(
1
)
]
A person has subscribed for securities
of a company action on any statement
included
or the inclusion or omission of any
matter, in the prospectus which is
misleading and has sustained any loss
or damage as a consequence thereof,
the company and every person who-
(a)Is a director of the company at the
time of the issue of the prospectus;
(b)Has authorized himself to be name
and is named in the prospectus as a
director of the company, or has
agreed to become such director,
either, immediately or after an
interval of time;
(c) Is a promoter of the company;

28. (d) Has authorized the issue of the prospectus;
and
(e) Is an expert referred to in sec. 26(5).
shall, be liable to pay compensation to
every person who has sustained such loss or
damage.
Thus a person who has subscribed for
securities on the faith of the misleading
prospectus has remedies against-
(a)The company and
(b) the directors, promoters, experts and every
person who authorized the issue of
prospectus.
Remedies against the company. A person
who has been induced to subscribe for
shares may (1) rescind the contract to take
the securities ; (2)claim damages.

29. Criminal Liability
Sec.34 of the Companies Act, 2013 provides
for criminal liability for misstatement in
prospectus. It provides that where a prospectus,
issued, circulated or distributed under this
Chapter, includes any statement which is unture
or misleading in form or context in which it is
included or where any inclusion or omission of
any matter is likely to mislead, every person who
authorizes the issue of such prospectus shall be
liable under sec. 447.
In addition to penal provisions for untrue
statement in prospectus , now in case of
prospectus containing statement which are
misleading in form or context or where any
inclusion or omission of any matter is likely to
mislead, the persons who have authorised the
issue of the said prospectus shall also be
criminally liable.
C
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30. I
S
S
U
E
A
N
D
A
L
L
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M
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O
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S
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N
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M
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S
[
S
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C
.3
8
]
Benami shareholding and
shareholding in the name of fictitious or
non existing persons are common. The
object is avoid tax. Section 38 makes it
an offence to make application for shares
in the name of, or to induce the allotment
or transfer of shares to fictitious persons.
The punishment in such cases is imposed
u/s 447
(improvement for 6 months which may
extend to 10 years or five equivalent to
three times the amount of fraud)