Statement in Lieu of Prospectus

Under section 19 of the Companies Act 2017 it is stated that a public company before
commencement of its business has to publish a prospectus but clause e of section 19 says that
there might be some cases when a public company does not publish a prospectus. Publishing of
prospectus is not compulsory in all cases. In such cases, a company might publish a statement is
lieu of prospectus. This statement has also to be registered with the registrar before its
publication. Statement in lieu of prospectus is to be prepared in accordance with the second
schedule of the Companies Act 2017.

1. Definition
Statement in lieu of prospectus may be defined as a public document which is prepared
by a public company in accordance with the second schedule of the Companies Act 2017
where a public company does not issue a prospectus and it is signed by every person who
is nominated as a director of that company. It is to be published by a public company
where the company does not publish prospectus. The private companies are not
concerned with prospectus or statement in lieu of prospectus.
Whenever the statement in lieu of prospectus is prepared, it is signed by every director of
the company as well as by other concerned persons who are officers of that public
company.
Now the question arises why the public company does not issue prospectus and why
statement in lieu of prospectus is issued?
There might be certain reasons as stated below.
 First of all, in such a case where a public company does not want to invite the
public for subscription then it might not publish the prospectus and will issue
statement in lieu of prospectus. The main purpose for inviting the public for
subscription of its shares is to raise money, to raise funds for investment in
certain businesses. If a public company has already got a certain amount of
money which is enough for it or it has acquired the funds by issuing shares to
friend of directors or promoters or if the initial subscription which was done by
subscribers of memorandum is sufficient or there have been other ways by
which the company has acquired certain amount of money like by borrowing
etc. In all such cases public company may not require inviting the public for
subscription of its shares. If public is not to be invited for subscription of shares
of a company then that Public company will not issue the prospectus rather
statement in lieu of prospectus will be issued.
 The second scenario might be where a public company has invited the public
and has issued a prospectus first of all but public response was very much poor.
So, in that case the company might not have even acquired the minimum
subscription. Consequently, shares will not be allotted to public. In such case the
 company would turn to other ways like borrowing money from financial
institutions etc. In such a scenario, when a public company is not going to allot
the shares to the public then there would be no need of prospectus and it will be
of no use and statement in lieu of prospectus will be issued instead. This
statement would be registrar with the registrar before its publication.

Another question arises that what would be the liability of any mis statement is
statement in lieu of prospectus?

Statement in lieu of prospectus is a legal and public document. Although, it is not

meant to invite the public for subscription of shares of the company but it being
prepared by the public company and is registered with the registrar. If any person
from the public goes through the document and on basis of that document such
person acquires shares in that company and afterwards it is found that there were
misleading statements in statement in lieu of prospectus. As this statement in lieu of
prospectus is the basis on which the person acquired the shares of the company so
the misleading statements will be considered as misstatements in contract. There
would be liability created against the company in favor of aggrieved person. The
aggrieved person can go against the company or the directors of the company as he
could have gone against the company in case of prospectus. Liability in case of
misleading statements in statement in lieu of prospectus will not be as much severe
as it was in case of prospectus. This liability will only be in case of misleading
statements or misrepresentation in statement in lieu of prospectus in a contract. So
this contractual liability will be there if there are misleading statements is statement
in lieu of prospectus.

What are the main contents in statement in lieu of prospectus?

For the contents of statement in lieu of prospectus one has to move on to the second
schedule of the Companies Act 2017.

Apparently, it is very much similar to prospectus but as it is not for inviting public
so it is only statement of facts or statement of information and there is nothing for
inviting the public.

Second Schedule gives the form of statement in lieu of prospectus which is to be

delivered to the registrar by a public company which does not issue a prospectus.

The first section contains basic information regarding the company. The basic
information includes name of the company, Corporate Universal Identification
number of the company, registered office address, Telephone number, Email,
address, Fax number, website address etc.
After this, there is information regarding the authorized share capital. It includes the
total amount of the authorized share capital, the nominal value of each share, kinds
of shares, and classes of shares, number of shares, special rights in case of shares
other than ordinary shares etc.

Then, there is information regarding business of the company. The main business of
the company which is undertaken and the future prospects of the company are
mentioned.

Then, there is information regarding names, residential address, Email address, Cell
no., Telephone No., occupation and directorship in other company, CNIC number,
father or husband name of the Chief Executive, Directors, Company Secretary,
Chief Accountant/Chief Financial Officer, Auditor of the Company, Legal Advisor,
Managing agent.

Then there is a table regarding remuneration which is to be paid to above mentioned

persons.

Then, there is a table regarding number and amount of shares issued by the
company. The number of shares issued, kinds of shares issued, nominal value of
shares, and number of shares issued, amount and names of allottees. All these
details are mentioned.

Then, if there are details regarding number and amount of shares agreed to be issued
for consideration otherwise than in cash like for services of a certain person etc.
This table includes details of consideration otherwise than cash, the person to whom
such shares are issued, date for exercising the option etc.

Then, there is a table regarding commission agreed to be paid for arranging

subscribers of the shares to underwriters or other persons..

The details regarding the debentures which were issued for cash then the amount of
such debentures, number of such debentures, Face/Nominal value, etc.

In the same there is a table regarding the debentures which are issued for
consideration otherwise than cash, number and amount of such debentures, details
of consideration etc.

Then there is a table regarding the commission paid for arranging subscribers of
debentures to underwriters or other persons.

Then there are details of every contract which has been entered into by the company
after its incorporation regarding the immovable property or other intangible assets
exceeding the value of 100,000 rupees.
Then, if company wants to enter into any new contract the details of such intended
contracts must also be given. The nature and future prospects of such contracts and
benefits for execution of such contracts must also be given. The copies of those
contracts which company wants to start afterwards must be there. If such contracts
have been reduced to writing, the copies of those contracts and if they are not
reduced to writing then the memorandum of such contracts giving full particulars in
English and if not in English then its translation shall be provided in English or
Urdu.

If company wants to acquire any running business then details of such business
shall be mentioned. The previous profits and losses which have been acquired by
that business for the last 5 years as certified by Auditor shall also be mentioned.

The preliminary expenses of the company, the amounts which were paid to any
person for his services for the incorporation of the company, any payments which
have been made for the transactions or actions before the incorporation of the
company must also be mentioned.

If there is any minimum subscription which has been mentioned in the articles or
memorandum of the company shall also be mentioned. Moreover, if any payments
have been made for the arrangement of allotment of shares or if any contracts have
been made for such purposes then the details of such contracts and commission or
payments which has to be made to any person for these services must also be
mentioned. The sources of funds from which the payment is made shall also be
mentioned.

Afterwards, the statement in lieu of prospectus is to be signed by the directors or

their authorized agents as well as by other officers of the company especially
including Chief Financial Officer and Legal Advisor of the Company.

Section 2 of statement in lieu of prospectus contains certain statements or certain

reports by the auditors of the company.

These reports are to be mainly prepared by the Auditor of the company (the person
who is capable of being appointed as the auditor of the company).

First of all, if the company has to acquire the running business then the auditor of
the company has to prepare a report regarding that business, running of business,
profits/losses and current scenario of business etc shall be mentioned in the
auditor’s report.

This report must be based upon last preceding 5 financial years.

Secondly, if a company has to acquire shares of another company or body corporate
then details of such body corporate, its profits and losses of last 5 preceding
financial years must be mentioned. If that body corporate has got certain
subsidiaries then the details regarding the subsidiaries, the profits and the account
details must also be mentioned.

In this way these reports must be prepared as to give a person who is looking at the
statement in lieu of prospectus the future aspects of the company and if the
company is acquiring the shares of another company so as to make the other
company its subsidiary, the details and accounts of that company, the details of
profits acquired by that company etc.

In this way, statement in lieu of prospectus is to be prepared and is to be sent to

registrar so that he may register this statement.