Prospectus

Kazi Murad Hossain

Assistant Professor, Law Discipline , Khulna University
Definition of prospectus

A document by which the subscribers are

invited to buy shares or debentures of the
company.
Sec. 142 of companies Act , 1994 Provides -
Document containing offer of shares or debentures
for sale to be deemed a prospectus.
Characteristics of Prospectus

 It is a document described or issued as a prospectus

 It is a document containing offer of shares or debentures
for sale.
 The public is invited to subscribe to the shares or debentures of the
company;
 It includes any notice, circular, advertisement inviting deposits from
the public;
 It is a document by which the company procures its share capital
needed to carry on its activities.
Significance and importance of
Prospectus
 One of the most common reasons for issuing a prospectus is when a
company is making an initial public offering, putting shares of stock
up for sale for the first time. There are some other importance of
prospectus:
 Issuer Information
 Offering Information
 Mutual Fund Activity, Objectives and Leadership
 Mutual Fund Fees, Expenses and Guidance
Meaning of Public Issue

 A prospectus is basically a formal and legal document issued by a

body corporate which acts for inviting offers from the public for
subscription or purchase of any securities. Every public company is
entitled to issue the prospectus for its shares or debentures. But, the
same is not required for a private company.
 Public Issue: Public issue or public offering refers to the issue of
shares or convertible securities in the primary market by the
company's promoters, so as to attract new investors for a
subscription.
Prospectus – whether an offer or
invitation to treat:
 Learn from

 A I Khan, Fundamentals of Company Law, update Edition, University Publications

Contents of prospectus

 Contents of Prospectus under the Companies Act 1994:

According to Part I of Schedule III, the following matters must be stated in the
prospectus:
 1. Name and address of the company
 2. Objects of the company
 3. Full particulars of the signatories to the Memorandum and number of
shares taken by them.
 4. The names, addresses and occupations of the directors, managing
directors or managers etc.
 5. The number and classes of shares.
Contents of prospectus

 6. The minimum subscription.

 7. The qualification shares of a director and the remuneration of the
directors.
 8. The amount payable on application, on allotment and on calls.
 9. The names of the underwriters.
 10. The estimated amount of preliminary expenses.
Contents of prospectus

 11. The names and addresses of the auditors of the company.

 12. Particulars about reserves and surpluses.
 13. Voting rights of the different classes of shares.
 14. Reports of the auditors regarding profits and losses of the company.
 15. A similar report by the Chartered Accountant regarding the Profits and
Losses and Assets and Liabilities of the Company.
Contents of prospectus under the
Public Issue rules, 1998
Material information under PIR, 1998
Its business procedure,
Financial position,
Profit and loss etc.
Rules regarding issue of prospectus

 1) Every Prospectus to be dated [sec 134]

 2) Registration of prospectus [138]
 3) Expert’s consent[sec 139]
 4) Terms of the contract mentioned in the prospectus not to be varied.
 5) Application forms for shares to be accompanied by an abridged for of
prospectus
Statement in lieu of Prospectus

 Statement in Lieu of Prospectus

 If promoters think they can raise fund without issuing prospectus.
 When the prospectus is not issued by the company a statement in lieu of
prospectus, must be filed with the Registrar at least [three days] before
the allotment of shares. The contents of the statement in lieu of prospectus are
very much similar to the prospectus. The statement must be signed by all the
directors or their agents authorized in writing. These provisions do not apply to a
private company.
 The statement shall include the Particular set out in schedule IV.
 Section 144 – A company shall not at any time vary the terms of a contract
referred to in the statement in lieu of prospectus except under an authority
given by the company in general meeting.
 Also, learn from A I Khan, Fundamentals of Company Law, update Edition,
University Publications
Mis-statement in prospectus and
remedies against it.
 Consequences of misstatements in Prospectus
The persons, responsible for preparing false and misleading prospectus will
face civil and criminal liabilities.
 1. Civil liability
In case, misleading prospectus amounts to misrepresentation, the
aggrieved persons can repudiate the contract. They can claim refund of
their money. Damages can also be claimed from the persons found guilty.
 2. Criminal liability
In case any deliberate concealment is made, directors will be punished with a fine
or imprisonment or both.
Registration of prospectus [138]

 The copy for registration shall be submitted with the following documents:
 Expert’s consent
 A copy of contract in regards to the appointment and remuneration of
managerial personnel.
 A written statement relating to the adjustments …
Required References:

 (i) Dr. M Zahir, Company and Securities Laws , Revised and Updated
edition 2005, The University Press Limited.
 (ii) The Companies Act, 1994 (Govt. Publication).
 (iii) Avtar Singh, Company Law, Fourteenth Edition, 2004, Eastern Book
Company.
 (iv) A I Khan, Fundamentals of Company Law, update Edition, University
Publications
Further Reading

 https://finance.zacks.com/importance-prospectus-1022.html
 https://accountlearning.com/understanding-prospectus-meaning-
objectives-contents/
 http://www.yourarticlelibrary.com/company/prospectus/company-
prospectus-quick-notes/75894
 https://businessjargons.com/types-of-issue-of-shares.html