Offer for Sale (OFS) – Key Points

1. Meaning of Offer for Sale

 Public Offer includes an Offer for Sale (OFS) by an existing shareholder through a prospectus.

 It is an invitation to the public to purchase the company’s securities through an intermediary such
as an issuing house or merchant banker.

2. Section 25 – When an Offer for Sale is Deemed a Prospectus

 Under Section 25, when a company allots or agrees to allot securities with a view that they will be
offered to the public,
→ any document through which such an offer is made shall be deemed a prospectus issued by the
company.

 Meaning: Any document used to offer shares/debentures to the public is treated as a prospectus.

3. How OFS Works

 A company may allot shares/debentures to an issuing house (intermediary).

 The company may not intend to directly offer securities to the public.

 The issuing house then makes an Offer for Sale to the public.

4. Legal Consequences

Section 26 lays down the matters to be stated in a prospectus, such as:

 All laws applicable to a prospectus, including:

o Contents and disclosures

o Liability for misstatements

o Liability for omissions

→ also apply to an Offer for Sale.

5. Additional Information Required in OFS (Apart from Prospectus Requirements) s25(3) and 4

1. Net consideration amount received or to be received by the company in respect of the securities.

2. Time and place where the contract relating to allotment of such securities can be inspected.

6. Conditions for a Document to be Treated as an Offer for Sale

Any one of the following must be satisfied:

(a) Offer within Six Months

  The offer to the public is made within six months after the allotment or agreement to allot.

(b) Consideration Not Fully Received

 At the date of the public offer, the company has not yet received the full consideration for the
securities.

7. Signing of the Offer Document

 If a company makes the offer → must be signed by two directors.

 If a firm makes the offer, → must be signed by not less than one-half of the partners.

6. Meaning of “Issued” and “Public”

The provisions relating to a prospectus and penalties are attracted only when the prospectus has been
issued to the public.

 The term “issued” means issued to the public.

 The term “public” includes any section of the public, whether:

o Selected as members or debenture-holders, or

o As clients of the issuer, or

o In any other manner.

Illustrations:

 If 3,000 copies of a prospectus are distributed among members of certain gas companies, it is
deemed an offer to the public.

 If a company gives a prospectus to its solicitor, who forwards it privately to a client, this does not
amount to an issue to the public.

 A single private communication is not an “issue.” There must be some measure of publicity,
however limited.

Rights Issue as Deemed Prospectus:

 Where a rights issue is made to existing members with a right to renounce in favour of others, and
if the number of such other persons exceeds fifty, it also becomes a deemed prospectus.

9. Summary Table
Aspect Offer for Sale

Governing Sections Sections 25, 26, and 28, Companies Act, 2013

Who makes the offer Existing shareholders, promoters, or intermediaries

Legal Effect Deemed to be a prospectus issued by the company

If offered to the public within 6 months of allotment and full consideration

Presumption
not received

Additional Disclosures
Net amount received, contract inspection details, names of offerors
(S.25(3))

Signing Requirement
Two directors (company) or half the partners (firm)
(S.25(4))

Regulatory Authority SEBI for listed/public issues

Applicability Applies to both company-issued and shareholder-offered securities

Promoters selling their shares to the public through a recognized stock

Example
exchange

2. Matters to be Stated in the Prospectus [Section 26(1)]

Every prospectus issued by or on behalf of a company must be dated and signed, and must contain the
following information and reports:

(a) Information to be Stated:

1. Names and Addresses

o Registered office, company secretary, CFO, auditors, legal advisers, bankers, trustees (if any),
underwriters, and other prescribed persons.

2. Issue Details

o Dates of opening and closing of the issue, declaration regarding issue of allotment letters
and refunds within prescribed time.

3. Bank Account & Utilization of Funds

o Statement by the Board about the separate bank account for receipts of the issue and
details of utilization and non-utilization of previous issue proceeds.

4. Underwriting Details

o Disclosure of underwriters and their obligations.

5. Consents and Authorizations

o Consent of directors, auditors, bankers, experts, and other prescribed persons.

 6. Authority for Issue

o Details of the resolution authorizing the issue.

7. Allotment Procedure

o Procedure and time schedule for allotment and issue of securities.

8. Capital Structure

o Full details of authorized, issued, subscribed, and paid-up capital.

9. Objects of the Issue

o Main objects of the public offer and terms of the present issue.

10. Business and Project Information

o Main business, location, and implementation schedule of the project.

11. Project Particulars

o (A) Management perception of risks

o (B) Gestation period

o (C) Extent of progress

o (D) Deadlines for completion

o (E) Pending or past litigation by Government/statutory body in last five years against
promoters.

12. Financial Particulars

o Minimum subscription, amount payable by way of premium, issue of shares otherwise than
for cash.

13. Directors' Details

o Names, appointments, remuneration, and nature and extent of their interests in the
company.

14. Promoters’ Contribution

o Disclosure of sources of promoters’ contribution in the prescribed manner.

(b) Reports to be Set Out:

1. Auditor’s Report

o On profits, losses, assets, liabilities, and other prescribed matters.

2. Financial Performance (Last Five Years)

o Reports relating to profits and losses for the five immediately preceding financial years (or
lesser period) including those of subsidiaries.
 3. Business Report

o Reports made by auditors upon profits and losses and statement of assets and liabilities not
older than 180 days before the issue.

4. Utilization of Proceeds

o Reports about business or transactions where proceeds of securities are to be applied,

directly or indirectly.

(c) Compliance Statement

A declaration stating compliance with the provisions of the Companies Act, 2013, the Securities Contracts
(Regulation) Act, 1956, and the SEBI Act, 1992, along with rules and regulations framed thereunder.

(d) Other Prescribed Matters

Any other matters or reports as may be prescribed under the rules.

3. Exemptions [Section 26(2)]

The above requirements do not apply to:

1. A prospectus or form of application issued to existing members or debenture holders relating to

rights issue under Section 62, even if the right is renounceable.

2. A prospectus relating to securities identical to those already listed and dealt with on a recognized
stock exchange.

4. Filing and Registration Requirements

1. Filing with Registrar [Section 26(4)]

o No prospectus shall be issued unless a copy has been delivered to the Registrar for
registration on or before the date of its publication.

o It must be signed by every person named as a director or proposed director.

2. Expert’s Statement [Section 26(5)]

o A prospectus shall not include a statement by an expert unless such person:

 Is not engaged in the formation, promotion, or management of the company,

 Has given written consent to include the statement, and

 Has not withdrawn such consent before registration.

3. Delivery and Registration [Sections 26(6)–(7)]

 o Prospectus must mention that a copy has been delivered to the Registrar and specify
accompanying documents.

o The Registrar shall not register unless all requirements are complied with and necessary
consents are attached.

4. Validity [Section 26(8)]

o A prospectus is invalid if issued more than 90 days after the date on which it was delivered
to the Registrar.

5. Penalty for Contravention [Section 26(9)]

If a prospectus is issued in contravention of this section:

 Company: Fine between ₹50,000 and ₹3,00,000.

 Every person knowingly party: Imprisonment up to 3 years or fine between ₹50,000 and ₹3,00,000
or both.

6. Case Laws

1. Re South of England Natural Gas and Petroleum Co. Ltd. (1911) 1 Ch 573 – Established the
principle of full and honest disclosure in a prospectus.

2. Nash v. Lynde (1929) AC 158 – Clarified that a prospectus must not be misleading even by omission.

3. SEBI v. Kunnamkulam Paper Mills Ltd. (2013) 178 Comp Cas 371 (Ker.) – Reinforced SEBI’s power to
act against companies issuing misleading prospectuses.

7. Conclusion

Section 26 ensures transparency, accountability, and investor protection by mandating comprehensive

disclosure before a company invites public investment. Strict compliance safeguards investors’ interests and
upholds market integrity.

Section 4 of the Companies Act, 2013, deals with the naming of a company and lays down restrictions and
procedures to ensure that company names are not misleading or undesirable.

1. Section 4(1)

If a company is a public company, then the word ‘Limited’ should be there in the name. Example,
“Robotics”, a public company, its registered name will be “Robotics Limited”.

• If a company is a private company, then ‘Private Limited’ should be there in the name. “Secure “a private
company, its registered name will be “Secure Private Limited”.

• This condition is not applicable to Section 8 companies.

Section 8 Company is named after Section 8 of the Companies Act,2013. It describes companies which are
established to promote commerce, art, sports, education, research, social welfare, religion etc. Section 8
companies are similar to Trust and Societies, but they have a better recognition and legal standing than
Trust and Societies.

1. Section 4(2): Restrictions on Name

The name stated in the memorandum shall not –
(a) Be identical with or resemble too nearly the name of an existing company;
(b) Be such that its use –
(i) Would constitute an offence under any law in force; or
(ii) Is undesirable in the opinion of the Central Government.

3. Section 4(3): Words/Expressions Requiring Prior Approval

No company shall be registered with a name which –
(a) Gives the impression of connection with the Government or any authority; or
(b) Contains words/expressions prescribed under Rule 8 of the Companies (Incorporation) Rules,
2014, unless the Central Government’s approval is obtained.
If a company adds ‘Limited’, ‘Private Limited’, ‘LLP’, ‘Company’, ‘Corporation’, ‘Corp’, ‘inc’ and any
other kind of designation to its name to differentiate it from the name of the other company, the
name would still not be accepted.

3. Section 4(4): Application for Reservation of Name

Application for reservation of a name may be made –

 Through SPICe+ (INC-32) for incorporation, or

 Through RUN (Reserve Unique Name) for change of name.

The name can be applied for as:

(a) The proposed company name, or
(b) The new name of an existing company.

4. Section 4(5): Reservation Period & Penalty

(i) The Registrar may reserve the name for 20 days (new company) or 60 days (existing company).
(ii) If false or incorrect information is furnished:

 (a) If not incorporated → name cancelled + penalty up to ₹1,00,000.

 (b) If incorporated → Registrar may direct to change name, strike off, or apply for winding up.

4. Objective of the Section

The main object is to prevent misleading names and protect the public from confusion or
deception.
I.E.
 Undesirable names are those names which in the opinion of the Central Government are:

1. Prohibited under the Provisions of Section 3 of Emblems and Names (Prevention and Improper
Use) Act, 1950.
2. Names that resemble each other, which are chosen to deceive.
3. The name includes a registered trademark.
4. The name includes any word or words that are offensive to a section of people.
5. Name that is identical to or too nearly resembles the name of an existing Limited Liability
Partnership.
Furthermore, statutory names such as the UN, Red Cross, World Bank, Amnesty International etc.
are also not allowed to be chosen.
Names that in any way indicate that the company is working for the government are also not
allowed.

The Registrar must make preliminary enquiries to ensure that the name allowed by him is not misleading
or intended to deceive with reference to the Objects Clause of the memorandum [Methodist Church v.
Union of India, (1985) 57 Com Cases 443 (Bombay)].

The Registrar is not, however, required to carry out any elaborate investigation at the time of registration
of the company. Unless the purpose of the company appears to be unlawful ex-facie or is transparently
illegal or prohibited by any statute, it cannot be regarded as an unlawful association [T.V. Krishna v.
Andhra Prabha (P) Ltd., (1960) 30 Com Cases 437 (AP)].

In the case of Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd [146 (2008) DLT 274 (DB)], use of the
brand name as corporate name was settled. Both the plaintiff and the defendant companies belong to
the same family. The Appellant-plaintiff was the proprietor of the trade mark in the name “Atlas”. The
Respondent- defendant company containing the name “Atlas” in its corporate name started dealing in
bicycles. The plaintiff objected to the use of the name “Atlas” by the defendant company. The
Defendants were restrained from using the word ‘Atlas’ in their corporate/trade name in respect of
bicycles and bicycle parts.

In short:
→ No identical or offensive names
→ No fake government link
→ Name must be reserved properly
→ Penalty for false information