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PROSPECTUS
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Arun Verma (c)

PROSPECTUS
COMPANIES ORDINANCE, 1984
Prospectus means any document described or issued as prospectus
and includes-
• any notice, circular, advertisement or any other communication,
inviting offers from the public for the subscription or purchase of
any shares in or debentures of, body corporate, inviting deposits
from the public other than deposits invited by a banking company or
a financial institution approved by the Federal Government whether
described as prospectus or otherwise.
DEFINITION: (Companies Act 2013)
 Clause (70) of Section 2 of the Act 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.

 Section 26 deals with matters to be stated in prospectus.

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Arun Verma (c)

PROSPECTUS
MEANING:
• Company is released by company to
prospectus
inform the public and investors of the various
securities that are available. These documents
describe about mutual funds, bonds, stocks and
other forms of investments offered by the company.
A prospectus is generally accompanied by basic
performance and financial information about the
company.
• Prospectus is a formal legal document, which is
required by and filed with the SECP that provides
details about an investment offering for sale to the
public, it should contain the facts that an investor
needs to make an informed investment decision
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Arun Verma (c)

PROSPECTUS
CONCLUSION

Prospectus is a mandatory document for

limited organization to commence their
business, but its complicated procedure delays
the operation of any business, therefore a no.
of organizations hesitate to issue Prospectus to
general public for subscription of share capital
& Debenture.
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Arun Verma (c)

PROSPECTUS
WHICH COMPANIES ARE REQUIRED TO ISSUE
PROSPECTUS
• Every public listed company who intends to offer
shares or debentures of the company to the public.
• Every private company who ceases to be a private
company and converts into a public company and
intends to offer shares or debentures of the company to
the public.
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Arun Verma (c)

REQUIREMENTS OF A PROSPECTUS

 A document would be considered a prospectus

only if it meets the following requirements, viz.
 it should be in writing
 it should be issued by or on behalf of a body
corporate
 it should be issued to public
 it should contain invitation to public for
making deposits or for subscription of shares in
or debentures of a body corporate.
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Arun Verma (c)

CONTENTS OF PROSPECTUS (SECTION-26)

 It shall be dated and signed and shall contain the following things:
• (1) Every prospectus issued by or on behalf of a public company
either with reference to its formation or subsequently, or by or on
behalf of any person who is or has been engaged or interested in the
formation of a public company, shall be dated and signed and shall—
• (a) state the following information, namely:—
• (i) names and addresses of the registered office of the company,
company secretary, Chief Financial Officer, auditors, legal advisers,
bankers, trustees, if any, underwriters and such other persons as may
be prescribed;
 (ii) dates of opening and closing of the issue.
 (iii) a statement by the BOD of separate bank account.
 (iv) details about underwriting of the issue.
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Arun Verma (c)

CONTD….
• (v) consent of the directors, auditors, bankers to the issue,
expert’s opinion, if any, and of such other persons, as may be
prescribed;
• (vi) the authority for the issue and the details of the resolution
passed therefore;
• (vii) procedure and time schedule for allotment and issue
of securities;
• (viii) capital structure of the company in the prescribed manner;
• (ix) main objects of public offer, terms of the present issue and
such other particulars as may be prescribed;
• (x) main objects and present business of the company and its
location, schedule of implementation of the project;
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Arun Verma (c)

CONTD….
• (xi) particulars relating to—
• (A) management perception of risk factors specific to the project;
• (B) gestation period of the project;
• (C) extent of progress made in the project;
• (D) deadlines for completion of the project; and
• (E) any litigation or legal action pending or taken by a Government
Department or a statutory body during the last five years immediately
preceding the year of the issue of prospectus against the promoter of the
company;
• (xii) minimum subscription, amount payable by way of premium, issue
of shares otherwise than on cash;
• (xiii) details of directors including their appointments and remuneration,
and such particulars of the nature and extent of their interests in the
company
as may be prescribed; and
• (xiv) disclosures in such manner as may be prescribed about sources
of promoter’s contribution;
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Arun Verma (c)

CONTD….

(B) REPORTS IN PROSPECTUS:

 1. Reports by the auditors of the company.
 2. Reports relating to profits and losses of the company.
 3. Reports about the business or transaction to which
the proceeds of the securities are to be applied.

(C) DECLARATION:
 Prospectus shall make a declaration about the compliance of
the provisions of the act and nothing contained in the
prospectus is contravening the provisions of act, Securities
Contract regulation act 1956 and Securities and exchange
Board of India Act 1992.
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Arun Verma (c)

CONTRAVENTION OF SECTION 26 OF
THE ACT

• If a prospectus is issued in contravention of the provisions of

the section, then

• Company shall be punishable with a fine not less than

Rs
50000 which may extend to Rs three lakhs, and

• Every person who is party to the issue of the prospectus shall

be punishable with an imprisonment for a term which may
extend to three years or with a fine not less than Rs 50000
which may extend to Rs three lakhs, or with both.
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Arun Verma (c)

TYPES OF PROSPECTUS
• ABRIDGED PROSPECTUS

• DEEMED PROSPECTUS

• SHELF PROSPECTUS

• RED HERRING PROSPECTUS

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Arun Verma (c)

ABRIDGED PROSPECTUS

• According to Sec. 2(1) of the Companies Act of

1956, a company cannot issue applications for
issue of share or debentures. It cannot do so if
it does not contain the salient features of
the prospectus of the memorandum. This is
known as ‘abridged prospectus’. In other
words ‘abridged prospectus’ is a one that contains
the salient features of the memorandum of the
prospectus.
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Arun Verma (c)

DEEMED PROSPECTUS
• Section-25 provides that where a company allots or
agrees to allot any shares or debentures with a view
to these being offered for sale to the public, any
document by which the offer of sale to the public is
made, shall for all purposes be deemed to be a
prospectus issued by the company.
• Further, an allotment of, or an agreement to allot,
shares or debentures shall be deemed to have been
made with a view to the shares or debentures being
offered for sale to the public, if it is shown;
▫ (i) That the offer of the shares or debentures for sale to
the public was made within six months after the
allotment or agreement to allot;
▫ (ii) That at the date when the offer was made, the whole
consideration to be received by the company in respect
of the shares or debentures had not been received by it.
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Arun Verma (c)

Additional requirement relating

deemed prospectus
• (i) The net amount of considerationtoreceived or to
be received by the company in respect of the
shares or debentures to which the offer relates;
• (ii) The place and time at which the contract
under which in the said shares or debentures
have been or are to be allotted may be inspected.
Section 60, dealing with the registration of
prospectus applies to the deemed prospectus in
terms of section 64(4) and accordingly it renders
the persons making the offer of sale to the public
as deemed directors of the company.
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SHELF PROSPECTUS Arun Verma (c)

Section-31 Shelf prospectus

• (1) Any class or classes of companies, as the Securities and
Exchange Board may provide by regulations in this behalf,
may file a shelf prospectus with the Registrar at the stage
of the first offer of securities included therein which shall
indicate a period not exceeding one year as the period of validity
of such prospectus which shall commence from the date of
opening of the first offer of securities under that prospectus,
and in respect of a second or subsequent offer of such securities
issued during the period of validity of that prospectus, no
further prospectus is required.
• (2) A company filing a shelf prospectus shall be required to file
an information memorandum containing all material facts
relating to new charges created, changes in the financial
position of the company as have occurred between the first offer
of securities or the previous offer of securities and the
succeeding offer of securities and such other changes as may be
prescribed, with the Registrar within the prescribed time, prior
to the issue of a second or subsequent offer of securities under
the shelf prospectus:
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Arun Verma (c)

• Provided that where a company or any other person has

received applications for the allotment of securities along
with advance payments of subscription before the making
of any such change, the company or other person shall
intimate the changes to such applicants and if they express
a desire to withdraw their application, the company or
other person shall refund all the money received as
subscription within fifteen days thereof.
• (3) Where an information memorandum is filed,
every time an offer of securities is made under
sub-section (2), such memorandum together with
the shelf prospectus shall be deemed to be a
prospectus.
• Explanation.—For the purposes of this section, the
expression “shelf prospectus” means a prospectus in
respect of which the securities or class of securities
included therein are issued for subscription in one or
more issues over a certain period without the issue of a
further prospectus.
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Arun Verma (c)

RED HERRING PROSPECTUS
• A red herring prospectus, as a first or preliminary prospectus, is a
document submitted by a company (issuer) as part of a public offering
of securities (either stocks or bonds). Most frequently associated with
an initial public offering (IPO), this document, like the previously
submitted Form S-1 registration statement, must be filed with the
Securities and Exchange Commission (SEC).
• A red herring prospectus is issued to potential investors, but does not
have complete particulars on the price of the securities offered and
quantum of securities to be issued. The front page of the
prospectus displays a bold red disclaimer stating that
information in the prospectus is not complete and may be
changed, and that the securities may not be sold until the
registration statement, filed with the market regulator, is
effective. Potential investors may not place buy orders for the
security, based solely on the information contained within the
preliminary prospectus. Those investors may, however, express
an “indication of interest" in the offering, provided that they
have received a copy of the red herring at least 48 hours
prior to the public sale. After the registration statement becomes
effective, and the stock is offered to the public, indications of interest
may be converted to purchase orders, at the buyer's discretion. The
final prospectus must then be promptly delivered to the buyer.
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• Contents: Arun Verma (c)

• “Red-herring prospectus" means a prospectus that

does not have complete particulars on the price of the
securities offered and quantum of securities offered. The
red herring statement contains:
• purpose of the issue;
• disclosure of any option agreement;
• underwriter's commissions and discounts;
• promotion expenses;
• net proceeds to the issuing company (issuer);
• balance sheet;
• earnings statements for last 3 years, if available;
• names and address of all officers, directors, underwriters
and stockholders owning 10% or more of the current
outstanding stock;
• copy of the underwriting agreement;
• legal opinion on the issue;
• copies of the articles of incorporation of the issuer.
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Arun Verma (c)

REQUIREMENTS OF PROSPECTUS
1. Prospectus must be dated i.e. publication date.
2. It must include an auditor’s report on last five years profit
and loss account and on balance sheet at last date on which
accounts were prepared being a date not more than 120 days
before the date of issue of the prospectus.
3. It must be issued/published not less than seven or more than
thirty days before the subscription date.
4. If prospectus includes a statement made by an expert, the expert
must not be engaged or interested in the formation or promotion
or in the management of the company. A written consent of the
expert should also be obtained before the issue of prospectus
with the statement.
5. In case of a listed company approval of the SEBI must be
obtained within sixty days before the date of issue of prospectus.
However, Commission may, impose such conditions as it may
deem necessary.
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Cont’d Arun Verma (c)

6. A copy of prospectus must be sent to the registrar before the issue of

prospectus.

7 . Registrar shall not register the prospectus unless the above

requirements have been complied with.

8 . A sufficient number of copies of the prospectus issued under sub-

section (1) of section 53 shall be made available at the registered office
of the company with the stock exchange at which the company is listed
or is proposed to be listed and with the bankers to the issue and the
prospectus in its full text or in such abridged form as may be
prescribed shall be published at least in one local daily and one
English daily newspaper having circulation in the province where
stock exchange is situated at which the company is listed.