AMITY LAW SCHOOL

CORPORATE GOVERNANCE

Under the supervision of

Maam HONEY DHAWAN

TOPIC PROSPECTUS

SUBMITTED BY:
PARUL

NIGAM

B.COM L.L.B (H)

9TH SEMESTER
A8121610031

Acknowledgement
I Parul Nigam student of B.COM L.L.B, 5th YEAR (9th Sem)
(2010-2015) wants to thanks My LECTURER , Maam HONEY
DHAWAN for helping me and guiding me throughout the project
and providing me sufficient knowledge about the topic and
understanding the concept .
I would also like to thanks my parents and my friends for helping
and supporting me in making the project.

Thanking You,
Parul Nigam

Contents

Introduction
MEANING OF PROSPECTUS
PROSPECTUS (Companies Act 2013)
Objectives
CONTENTS IN PROSPECTUS
GOLDEN RULE IN PROSPECTUS
LEGAL
REQUIREMENT
PROSPECTUS

REGARDING

STATEMENT IN LIEU OF PROSPECTUS

DEEMED PROSPECTUS
Conclusion
BIBLIOGRAPHY

ISSUE

OF

Introduction
A prospectus means any document describe or issue as a prospectus and includes any
notice, circular, advertisement or other documents inviting deposits from the public or
inviting offers from the public for the subscription or purchase of shares in or debentures of a
day corporate.
From the it is clear that a prospectus is a document that invites the public to subscribe to the
share capital or debentures of a company. If it does not do that, it cannot be called a
prospectus. According to the Companies (Amendment) Act, 1971, an invitation to the public
inviting deposits is also deemed to be a prospectus. Some companies do not directly to the
public themselves, but allot the entire share capital to an intermediary, which then offers the
shares to the public by an advertisement of its own. Any document by which such offer for
sale to public is made is deemed to be a prospectus.
After getting the company incorporated, promoters will raise finances. The public is invited
to purchase shares and debentures of the company through an advertisement. A document
containing detailed information about the company and an invitation to the public subscribing
to the share capital and debentures is issued. This document is called prospectuses. Private
companies cannot issue a prospectus because they are strictly prohibited from inviting the
public to subscribe to their shares. Only public companies can issue a prospectus. Section 2
(36) of the Companies Act defines prospectus as, A prospectus means any document
described or issued as prospectus and includes any notice, circular, advertisement or other
documents invent deposits from public or inviting offers from the public for the subscription
or purchase of any shares in or debentures of a body corporate.
The prospectus is not an offer in the contractual sense but only an invitation to offer. A
document constructed to be a prospectus should be issued to the public. A prospectus must be
filed with the Registrar of companies before it is issued to the public. The issue of prospectus
is essential when the company wishes the public to purchase its shares or debentures.
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 is lieu of
prospectus. A prospectus duly dated and signed by all the directors should be field with
Register of Company before it is issued to the public.
A prospectus brings to the notice of the public that a new company has been formed. The
company tries to convince the public that it offers best opportunity for their investment. A
prospectus outlines a detail the terms and conditions on which the shares or debentures have
been offered to the public. Every prospectus contains an application from on which an
intending investor can apply for the purchase of shares or debentures. A company must get
minimum subscription within 120 days from the issue of prospectus. If it fails to obtain
minimum subscription from the members of the public within the specified period, then the
amount already received from public is returned. The company cannot get a certificate of
commencement of business because the public is not interested in that company.

MEANING OF PROSPECTUS
Prospectus is an invitation issued to the public to offer for purchase or subscribe the shares or
debentures of the company. Section 2(36) defines a prospectus as any document described or
issued as a prospectus which includes any notice, circular, advertisement or other document
inviting deposit from the public or inviting offer from the public for the subscription or
purchase of any shares in, or debentures of a body corporate. Thus, the following ingredients
may be said to constitute a prospectus

a.

there must be an invitation 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 or such other instrument.

A prospectus is not an offer in itself, but an invitation to make an offer to subscribe shares
and mere acceptance make a contract. Any advertisement stating, some shares are still
available for sale according to the terms of the prospectus of the company which can be
obtained on application is held to be a prospectus as it invite public to purchase shares. The
prospectus is usually a circular or newspaper advertisement published by the promoter to
induce public to subscribe the shares.
The prospectus should be issued to the public. According to the Section 67 (1) of the
Companies Act, the term public includes any section of the public, whether selected as
members or debentureholders of the company or as clients of the company issuing the
prospectus. But, a provision newly inserted to sub-section 3 in Section 67 by the Companies
(Amendment) Act, 2000 which treated the public issue as any offer of shares or debentures to
more than 50 persons. The public is not restricted to the public at large but includes any
section of the public.
A private placement where the companys director requests a few investors to subscribe share
is not prospectus. But a document addressed to the public even if it is in fact shown to one
person only to subscribe will be a prospectus and deemed to be issued.
Thus, an issue will not be Public, if
(i)

it is directed to a specified person or a group of persons, and

(ii)
it is not calculated to result in the shares or debentures becoming available to other
persons.

PROSPECTUS (Companies Act 2013)

Clause (70) of Section 2 of this Bill define prospectus means any document described or
issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf
prospectus referred to in section 31 or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any securities of a body
corporate.

Objectives:

Prospectus is issued with the following broad objectives:

It informs the company about the formation of a new company.
It serves as a 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 describes the nature, extent and future prospectus of the company.
It maintains all authentic records on the issue and make the directors liable for the
misstatement in the prospectus.

CONTENTS IN PROSPECTUS
The following important matter are included in the prospectus:

The prospectus contains the main objectives of the company, the name and addresses
of the signatories of the memorandum of association and the number of shares held by them.

The name, addresses and occupation of directors and managing directors.

The number and classes of shares and debentures issued.

The qualification share of directors and the interest of directors for the promotion of
company.

The number, description and the document of shares or debentures which within the
two preceding years have been agreed to be issued other than cash.

The name and addresses of the vendors of any property acquired by the company and
the amount paid or to be paid.

particulars about the directors, secretaries and the treasures and their remuneration.

The amount for the minimum subscription.

If the company carrying on business, the length of time of such businesses.

The estimated amount of preliminary expenses.

Name and address of the auditors, bankers and solicitors of the company.

Time and place where copies of balance sheets, profits and loss account and the
auditors report may be inspected.

The auditor's report so submitted must deal with the profit and loss of the company
for each year of five financial years immediately preceding the issue of prospectus.

If any profit or reserve has been capitalized, the particulars of such capitalization will
be stated in the prospectus.

GOLDEN RULE IN PROSPECTUS

Prospectus is the basis of the contract between the company and the persons who incest in
the companys shares or debentures. The officers of the company have knowledge of the
companys present status and its prospects in future or have the means to acquire such
knowledge. But the potential investor has no such knowledge, nor the means to acquire it. It,
therefore, becomes the duty of those who issue the prospectus that they not only projects the
companys image in the right perspective but also makes sure that no vital information which
could be of interest to the potential investors in the companys shares and debentures is left
out from the companys prospectus. it therefore become important that the prospectus states
the basic important facts about the company with utmost honesty and good faith and that no
information that is important is twisted or partially presented. That is what is refers to as the
golden rule for making a prospectus.
In short the following must be kept in mind when preparing the prospectus of a company:
1.
The prospectus must be an honest statement of the companys profile; there must be no
misleading, ambiguous or erroneous reference to the company in its prospectus.
2.
Every important aspect of a contract of the company should be clarified.
3. The contents of the prospectus should conform to the provision of the Companies Act.
4. The restrictions on the appointment of directors must be kept in mind.
5.
The conditions of civil liability as laid down must be strictly adhered to issue and
registration of prospectus or legal requirement regarding issue of prospectus.

LEGAL
REQUIREMENT
PROSPECTUS

REGARDING

ISSUE

OF

The Companies Act has defined some legal requirements about the issue and registration of a
prospectus. The issue of the prospectus would be deemed to be legal only if the requirements
are met.

1.Issue after the incorporation: As a rule, the prospectus of a company can only be
issued after its incorporation. A prospectus issued by, or on behalf of a company, or in
relation to an intended company, shall be dated, and that date shall be taken as the date of
publication of the prospectus.
2. Registration of prospectus: It is mandatory to get the prospectus registered with the
Registrar of Companies before it is issued to the public. The procedure of getting the
prospectus registered is as under:
a. A copy of the prospectus, duly signed by every person who is named therein as a
director or a proposed director of the company must be filed with Registrar of
Companies before the prospectus is issued to the public.
b. The following document must be attached thereto:
(i)
Consent to the issue of the prospectus required under any person as an expert
confirming his written consent to the issue thereof, and that he has not withdrawn his consent
as aforesaid appears in the prospectus.
(ii) Copies of all contracts entered into with respect to the appointment of the managing
director, directors and other officers of the company must also be filed with Registrar.
(iii) If the auditor or accountant of the company has made any adjustments in the companys
account, the said adjustments and the reasons thereof must be filed with the documents.
(iv) There must be a copy of the application which is to be filled for the issue of the
companys shares and debentures attached with the prospectus.
(v) The prospectus must have the written consent of all the persons who have been named
as auditors, solicitors, bankers, brokers, etc.
c.
Every prospectus must have, on the face of it, a statement that:
(i) A copy of the prospectus has been delivered to the Registrar for registration.
(ii) Specifies that any documents required to be endorsed by this section have been delivered
to the Registrar.
d.
A copy of the prospectus must be filed with the Registrar of Companies. The Registrar
should register the prospectus only when:
(i) The prospectus is dated. The date shall, unless the contrary is proved, be taken as the
date of publication of the prospectus.
(ii) The contents of prospectus conform to Section 56 of the Act.
(iii) The consent of the expert, if it is necessary, has been obtained. But such expert should
not be engaged or interested in the formation or promotion of the company.
(iv) The written consent of the expert with respect to the issue of his statement included in
the prospectus has been obtained.

If the above provision of law has been fulfilled, or the necessary documents have not been
attached, the Registrar can refuse to register the companys prospectus.
e.
According to the Section 60(4), no prospectus shall be issued more than ninety days
after the date on which a copy thereof is delivered for registration. Of the prospectus is so
issued. It shall be deemed to be a prospectus a copy of which has not been delivered to the
Registrar.
If a prospectus issued in contravention of the above stated provisions, then the company and
every person who knows a party to the issue of the prospectus shall be punishable with a fine.

STATEMENT IN LIEU OF PROSPECTUS

Where the shares or debentures are offered to the public by the public company, the company
may either issue a prospectus or a statement in lieu of prospectus. The private company while
converted into a public company, it must either file a prospectus if issued or file statement in
lieu of prospectus.
Section 70 (1) states that a public company having a share capital which
a.
does not issue prospectus or,
b.
issue prospectus, but has not proceeded to allot any of the shares offered to the public
for subscription , shall not allot its shares or debentures unless at least 3 days before the first
allotment of either shares or debentures, deliver a statement in lieu of prospectus to the
Registrar for registration.
A statement in lieu of prospectus has to deliver to the Registrar for registration. The statement
in lieu of prospectus contains similar particulars as are required for a prospectus and should
fulfil similar conditions as regards prospectus. No minimum subscription is required to be
stated in this statement, as this document does not relate to an offer to issue for a stated
number of shares at a stated price to subscribe.

DEEMED PROSPECTUS
The Act also deals with the concept of deemed prospectus under Section 64 of the
Companies Act, 1956. This section is an exception to issue of prospectus. A company may
allot or agree to allot any shares or debentures to an `issue house without there being any
intention on the part of the company to make shares or debentures available directly to the
public through issue of prospectus. But then it shall, unless the contrary is proved, be
evidence that an allotment of, or an agreement to allot, shares or debentures was made with a
view to the shares or debentures being offered for sale to the public if it is shown:
(a) that an offer of the shares or debentures or of any of them for sale to the public was made
within six months after the allotment or agreement to allot; or
(b) that at the date when the offer was made, the whole consideration to be received by the
company in respect of shares or debentures which had not been received by it.
The prospectus is the basic document on the basis of which the intending investors decide
whether or not they should subscribe to the shares or debentures. Therefore, the law requires
unstinted disclosure of various matters through prospectus and forbids variations of any terms
and conditions of a contract contained therein except with the approval and authority of the
company in general meeting.
Those who issue prospectus holding out to the public great advantage which will accrue to
persons who take up shares on the representations contained therein, are bound to state
everything with scrupulous accuracy and not only to abstain from stating as fact that which is
not so but to omit no fact within their knowledge, the existence of which might in any degree
affect the nature or extent or quality of the privilege and advantages which the prospectus
holds out as an inducement to take shares.
It is therefore essential that the information statutorily needing disclosure is stated fully and
precisely so that the investing public which is ignorant of the present and future prospects of
the company may get all the information which is likely to affect the public mind.[13] It is
only to protect the members of the public against their being misguided by half truths or
falsehoods that the law casts a liability on various persons connected with the issue of the
prospectus to compensate every person (who subscribes on the faith of the prospectus) for
any loss or damage he may have sustained because of the inclusion of any untrue statements
in the prospectus as per Section 62 of the Companies Act, 1956.

Conclusion

A public company raises its capital from the public and it issues prospectus for this purpose.
Sometimes, the promoters of a company decide not to approach the public for raising
necessary capital. They are hopeful of raising funds from the friends and relations or through
underwriters. In that case a prospectus need not be issued but a Statement in Lieu of
Prospectus must be filed with the registrar at least three days before the first allotment of
shares. Such a statement must be signed by every person who is named therein as a director
or proposed director of the company. This statement will be drafted strictly in accordance
with the particulars set out in a part I of Schedule III of the Act.

BIBLIOGRAPHY:
http://kkhsou.in/main/EVidya2/commerce/prospectus.html

 http://www.publishyourarticles.net/knowledge-hub/business-studies/what-is-aprospectus-state-the-various-contents-of-a-prospectus.html
http://aishmghrana.me/2013/09/10/prospectus-companies-act-2013/
http://lawmanblog.blogspot.in/2012/03/prospectus-in-company-law.html

6See, Rex V. Kylsant, Harvard Law Review. Retrieved on November 29,

2010 from, http://www.jstor.org/pss/1332145