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Q. No. 12: What is Prospectus? What matters should be embodied in a prospectus issued by the company? OR what is a prospectus of joint stock companies? Describe its Contents. ANSWER:

INTRODUCTION: After having been registered with the registrar, a company gets a certificate of incorporation in case being a private limited company, a private limited company, it can commence business, but a public limited company cant commence business has not been issued to company. To obtain this certificate a public limited has to issue a prospectus signed by the directors? DEFINITION: According to the Companies Ordinance 1984, Prospectus has been defined as: Any document described or issued as prospectus, and includes circular, advertisement or other communication, inviting offers from public for the purpose of allotting the company shares in, or debentures of, a body corporate, or inviting deposits from invited by a banking company, or a financial institution approved by the government, whether described as prospectus or otherwise. NEED FOR THE PROSPECTUS: The need of a prospectus can be explain by the following headings: 1) Setting Up a New Company: A prospectus is needed to bring into the notice of the general public, about the creation of company. 2) Induce Prospective Investors: Prospectus is issued to convince the prospective investors about the genuineness and financial base of the company. 3) Acceptance From Directors: It is also issued to assure that the company directors accept responsibility of the statement in the prospectus. 4) Record terms and Conditions: A prospectus is used to keep an authentic record of terms and conditions on which the company capital has been raised. CONTENTS OF PROSPECTUS: The important matters to the included in prospectus are divided in number of parts with the heads. These are briefly discussed below: (1) Share Capital: Under this head, information is provided regarding: (i) Share capital of the company. a) Authorized b) Issued, Subscribed or paid up capital c) Present issues offered for subscription (ii) Basis of allotment of shares. (iii) Facilities available to non resident Pakistanis for purchase of shares etc. (2) Commission, Brokerage and Tax exemptions: 1) Commission to be paid to the bankers to the issue. 2) Brokerage 3) Tax exemption on investment on the shares of the company. Prepared By: H.ABDUL REHMAN 0321-6485593


(3) 4) Exemption from custom duty and sales tax on plant and machinery, if any Brief History and prospects: It includes: a) Brief history of company. b) The main objects of the company c) The location of the plant d) Information about project, plant and its machinery rat material, etc. e) Economic justification and marketability of the goods to be produced. Financial Information: Under financial information, the following particulars are provided. 1) Auditors Report 2) Shareholders equity and liabilities. 3) Auditors certificate on shares capital. 4) Estimated cost of the project and the means of the finance. Board of Directors: Under this heads, the manes, addresses and occupation of the board of directors are given. Interest of Directors This head provides information regarding: 1) Interest of directors in dividends and other benefits. 2) Remuneration to be paid to the chief executive, directors and the secretary. General Information: The main information provided under this head is: 1) Appointment of chief executive 2) Election of directors. 3) Powers of directors. 4) Borrowing powers of the directors. 5) Voting rights. 6) Transfer of shares. 7) Quorum of general meeting. Miscellaneous: The main content sunder this head are: 1) Place of registered office, factory. 2) Bankers of the company 3) Bankers to the issue both local and foreigner. 4) Legal advisor, consultants to the issue, etc. Reports to be included The following reports can be included in prospectus: (i) Auditors Report This report is submitted with respect to profit and losses, assets and liabilities and rate of dividend paid of different classes of shares of the company. Experts Report A report prepared by the specialized person is also to be included in the prospectus.


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(10) Application and Allotment: The procedure of applying for shares, their scrutiny and allotment of share is made clear to the perspective investors in this section. MISSTATEMENT IN THE PROSPECTUS: The prospectus must give a full, accurate and a fair picture of the state of affairs and prospects of the company. On the other hand, it shall be deemed to be a prospectus containing untrue statement. Prepared By: H.ABDUL REHMAN 0321-6485593


If the promoters of a public company hope to get the subscription of capital from the limited circle, there is no need to issue prospectus to the public. The promoters shall have a statement in lieu of prospectus. According to Section 53 of the companies ordinance if a public company is not issued prospectus on its information, it then must file a statement in lieu of prospectus with the registered the companies. DEFINITION: A statement in lieu of prospectus in defined as: A public document prepared in the second schedule of Companies Ordinance by every such company which does not issue a prospectus on its formation by filing with the registrar allotment of shares or debentures, and signed by every person who is named therein. In case, the company has not filed a statement in lieu of prospectus the registrar, it is the allowed to allot any shares or debentures. CONTENTS OF A STATEMENT IN LIEU OF PROSPECTUS: A statement is lieu of prospectus contain the following information: 1) 2) 3) 4) 5) 6) 7) 8) 9) Name of Company. Statement of capital Description of the business. Names, addresses, and occupations of directors. Estimated initial expenses. Name of vendors and details of property. Material contracts. Directors interests. Minimum subscription.

CONCLUSION: The public company has to issue a prospectus in order to issue its shares to the public whereas if the directors thing that the existing shareholder will purchase the new issue of shares then it will issue statement in lieu of prospectus.