JAIIB LRAB Unit 60 - Prospectus

PROSPECTUS

The Companies Act, 1956 defines a prospectus as any document described or issued as a 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.

Prospectus means a document by which a company solicits funds from the public for its capital either by way of shares, debentures or deposits.

It is very clear that private companies cannot issue a prospectus to raise funds from the public. It is prohibited under the articles of association of the company. It is necessarily the public companies who issue the prospectus.

In the following cases even though shares are offered to the public, issue of prospectus is not required:

(a) When a person is invited to enter into an underwriting agreement/arrangement to purchase/subscribe the shares.

(b) When the shares are offered only to the existing shareholders or debenture holders of the company.

(c) When the shares or debentures offered are in all respect uniform with the shares or debentures previously issued and listed on a recognised stock exchange.

COMPLIANCE WITH RESPECT TO PROSPECTUS

(a) Time of issue of Prospectus: A prospectus can be issued only after the incorporation of the

company.

(b) Contents of the Prospectus: Section 56 read with Schedule II of the Companies Act, 1956

stipulates the mandatory provisions that are to be stated in the prospectus.

(c) Date of publication: Section 55 states that a prospectus must be dated and this ensures a prima facie evidence of the date of its publication.

(d) Signature of every director on the Prospectus: A prospectus must be signed by every person

(d) Application form with a Prospectus: Every application form for shares must be accompanied by a copy of the prospectus except for the application forms issued to underwriters and existing shareholders and debenture holders.

(f) Statements by expert in Prospectus: A prospectus including a statement purporting to be made by an expert cannot be issued unless he has given his written consent to the issue thereof and he has not withdrawn such consent before the delivery of a copy of the prospectus for registration to the Registrar of Companies and a statement that he has given and has not withdrawn his consent as aforesaid appears in the prospectus.

(g) Registration of the Prospectus: Before the issue of a prospectus the same must be delivered to the Registrar of Companies for registration with the documents which are stipulated under the Companies Act, 1956, e.g. the consent of the expert, copy of contracts relating to appointment and remuneration of the managerial personnel, etc.