WHAT IS PROSPECTUS OF A

COMAPANY? EXPLAIN THE

CONSEQUENCES OF
MISSTATEMENT IN PROSPECTUS.

Presented by

Pratyusha Kuila
PGDM, 2022-24
Calcutta Business School
WHAT IS PROSPECTUS
 A company's prospectus is a formal legal document designed to
provide information and full details about an investment offering
for sale to the public.

 Companies are required to file the documents with the Securities

and Exchange Commission (SEC).

 The prospectus documents must be made available to a

prospective public investor prior to purchase.

 Investors are encouraged to read and understand the terms of the

offering before making a purchase decision.

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WHAT IS IN THE PROSPECTUS
 Most companies have a corporate website with a section labeled Investor
Relations that should have available a wide range of company
documentation, including quarterly and annual reports.
 The prospectus document is issued to inform investors of the potential risks
involved with investing in a particular stock or mutual fund.

 Companies that wish to offer stock or bond for sale to the public must file a
prospectus as part of the registration process with the SEC

 The preliminary prospectus (sometimes known as a red herring) is the first

offering document provided by a security issuer and includes most of the
details of the business and transaction.
 The final prospectus contains the complete details of the investment
offering to the public.

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 WHAT IS THE MISSTATEMENT
Any statement in the prospectus that is erroneous or misleading is
referred to as misstatements in the prospectus.
 A misrepresentation is defined as the inclusion or omission of a fact
that is likely to mislead the public.
A misstatement of an existing fact is required to activate it. If a
representation was true only at the time of prospectus issuance and
not at the time of allotment, it would trigger liability.
 A statement in a prospectus about the persons who would be
directors is a significant statement, and if it is false, a person who
subscribed on the basis of it is prima facie entitled to cancel their
subscription.
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 CONSEQUENCES
 LIABILITY FOR MISSTATEMENT WITHIN THE PROSPECTUS
 The one who gives the consent and signs the prospectus is to blame for any misstatement in a prospectus. The Managers, CS and also the Directors of the
corporate are answerable for the same. However, mere signing won’t result in liability for misstatement if the person who signed the prospectus is neither
a Manager nor draws salary from that company.

 CRIMINAL LIABILITY FOR MISSTATEMENT IN PROSPECTUS

 When any statement within the prospectus includes misleading or untrue information is distributed then everyone who authorized the issue of the
prospectus is liable under section 447of this Act.

 CIVIL LIABILITY FOR MISSTATEMENT

 Section 62 of the Companies Act deals with the civil liability and makes the actual person responsible to pay every single individuals who has contributed
for any share or debentures and could have grieved any damages by believing the prospectus where false and misleading information has been published.
Every person and the company is liable who-
 Is a director when prospectus was issued
 Named as the director or authorized himself or has agreed to become a director
 The promoter of the corporation
 Has authorized the issue of the prospectus

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Thank you