Dated- 1st -2ndSeptember, 6th-7th September

• TOPIC-PROSPECTUS
 PROSPECTUS
POINTS TO REMEMBER-

 Prvt. Co.-prohibited from inviting public to subscribe to its share

capital/deb(friends/family)
 Only pub co. can invite public to subscribe to share capital-by issue of
prospectus
 Defined in Sec 2(70)-any document described or issued as
prospectus and includes
 Red Herring Prospectus(S.32)
 Shelf prospectus(S.31)
 Any notice circular or other document inviting offers from the public
for the subscription or purchase of any securities of a body corporate
• TOPIC – UNDERSTANDING THE METHODS OF
RAISING FUNDS
Sec. 23-PUBLIC OFFER AND PRIVATE PLACEMENT

HOW CAN A PUBLIC COMPANY ISSUE SECURITIES?

1. THROUGH PROSPECTUS(PUBLIC OFFER)
 By complying the provisions of PART 1 OF CHAPTER III on Prospectus and Allotment of
Securities
 PUBLIC OFFER INCLUDES THE FOLLOWING
a) IPO by Co.
b) FPO by Co.
c) OFS
2. PRIVATE PLACEMENT
 By complying the provisions of PART II OF CHAPTER III on Prospectus and Allotment of
Securities

3. RIGHTS ISSUE AND BONUS ISSUE

 By complying with the provisions of the Act
 In case of listed companies by complying with provisions of SEBI Act,1992
How can a Private Company issue securities?
PRIVATE PLACEMENT
 By complying the provisions of PART II OF CHAPTER III on Prospectus and
Allotment of Securities
 S.42
RIGHTS ISSUE OR BONUS ISSUE
Matters to be stated in prospectus(S.26)
S.26 lists the items to be included in prospectus

 Prospectus to be submitted to ROC for registration before issuing to the public.

 Prospectus is valid for 90 days from the date of delivery to ROC
Every Prospectus has to be
 Dated
 Signed
 Has to state such info as specified by SEBI in consult with C.G
 Set out such reports on financial info as specified by SEBI in consult with C.G
 make a declaration –compliance of provisions of this act
 statement that nothing in prospectus is contrary to provisions of this act;SCRA,1956; SEBI
ACT,1992 and rules made thereunder.
Matters to be stated in prospectus(S.26)
 Shall not contain statement purporting to be made by an expert
 Unless-
Expert is a person not engaged /interested in
formation/promotion /management of co. AND
Has given written consent to the issue of prospectus and has not
withdrawn consent before delivery of copy of prospectus to ROC for
registration(will include a statement to that effect).
Matters to be stated in prospectus(S.26)
The date indicated in prospectus-deemed date of publication
On or before the date of publication of prospectus-a copy of
prospectus has been delivered to ROC for registration-signed by every
person named as director/by his duly authorised attorney.
Every prospectus on the face of it-
-state---copy has been delivered for registration to ROC
ROC shall not register prospectus unless registration requirements
are complied and accompanied by consent in writing of all persons
named in prospectus.
No Prospectus is valid if issued more than 90 days after date on which
copy delivered to ROC
Matters to be stated in prospectus(S.26)
Penalty for non –compliance
 If Prospectus issued in contravention of the provisions-
-co. punishable with fine –not less than Rs 50,000/- and may extend to
Rs 3lk/-
-every person party to issue of such prospectus-punishable with imp.
Upto 3 yrs or fine -50k-3lk or both
S.27-Variation in terms of contract or objects in prospectus
• A company shall not vary the terms of contract /objects for which the
Prospectus was issued.
• Condition for exception to the above
Special resolution at general meeting
This notice of GM to be published in newspaper(1eng+1 vernacular)-
in the city where RO of company is situated(indicating justification for
variation)
Dissenting shareholder to be given exit option
Money raised via prospectus CANNOT be used for buying ,trading,
dealing in equity shares of other listed co.
Section 29- PUBLIC OFFER TO BE IN
DEMATERIALISED FORM
Every co. making public offer +other prescribed public companies
shall issue their securities ONLY in Dematerialised form
Section 30-ADVERTISEMENT OF
PROSPECTUS
Advertisement w.r.t Prospectus to specify the following-
• Object of the company
• Liabilities as per MOA
• Amount of share capital
• Names of signatories of MOA alongwith number of shares subscribed
for by them
• Capital structure
TYPES OF PROSPECTUS
• DEEMED PROSPECTUS(Sec 25,Sec.28)

• SHELF PROSPECTUS(Sec. 31)

• RED-HERRING PROSPECTUS(Sec. 32)

• ABRIDGED PROSPECTUS(Sec.33)
DEEMED PROSPECTUS
• Section 25-Offer ‘FOR’ Sale
• Any document by which offer ‘FOR’ sale of securities to the public is
made shall be treated as Deemed Prospectus.
• The ‘OFFER FOR SALE ‘document of such Issue House is called
‘DEEMED PROSPECTUS’
• Document to be signed by
In case of co.-by 2 directors
In case of firm- ½ of the Partners
• EFEECT OF DEEMED PROSPECTUS-All provision related to contents of
prospectus ,misstatement and omission in prospectus to apply
• Conditions for a doc. To be called as D.P under Section 25-
Issue house makes Offer FOR sale of securities within 6 months after
securities were allotted to them/agreed to be allotted to them
OR
On the date when offer was made by Issue House, whole
consideration in respect of securities has not received by the
company
Section 28:Offer ‘OF’ Sale of shares by
certain members of company
• When member or members of co. (individual or body corporate) in
consultation with Board of Directors-may offer their holding to
public(whole/part)
• Members collectively authorise co. to take action on their behalf
• They shall reimburse the co. of all expenses incurred
• Document by which Offer of Sale to public –Deemed prospectus
Shelf Prospectus(Section 31)
• Prospectus in respect of which securities are issued for subscription in
more than one issues over a certain period(not exceeding 1 year)
without the issue of further prospectus
• May be issued by co. as provided by SEBI
• The validity period of 1 year to commence from the date of opening
of first offer of securities under that prospectus.
• Co. filing shelf prospectus , shall be required to file an Information
memo with ROC before making subsequent offer
• Info memo?- material facts related to –changes in financial position of
co. between offers, new charge created etc.
• Info memo+ shelf prospectus-deemed to be prospectus
Sec. 32-Red Herring Prospectus
• Does not include complete particulars w.r.t QUANTUM and PRICE of
the securities
• A co. may issue R.H prospectus prior to issue of a Prospectus(Sec
32(1))
• R.H prospectus filed with Registrar at least 3 days prior to opening of
the subscription list and offer(Sec 32(2))
• It carries same obligation as Prospectus.
• Any variation b/w R.H Prospectus and prospectus –highlighted as
variation in Prospectus(S.32(3))
• When offer closes- prospectus stating total capital raised, closing price
of securities –filed with ROC and SEBI(Sec 32(4))
Abridged Prospectus-Section 33
• Section 2(1)-A.P means memorandum containing such salient features
of a Prospectus as may be specified by SEBI.
• Section 33- every form of application issued for the purchase of any
securities of a co.-to be accompanied by an abridged prospectus.
• Need not be accompanied with application form if the form was
issued- a)in connection with bona fide invitation to underwriter
b)when securities not offered to the Public(i.e. in case of PP)
• If any person requests copy of Prospectus before the closing of the
offer-it shall be furnished .
• Default in compliance-penalty of Rs 50k for each default.
Section 24- Power of SEBI to regulate issue
and transfer of securities
POWER LISTED CO. UNLISTED CO.

 TO REGULATE ISSUE AND SEBI CENTRAL GOVERNMENT(ROC)

TRANSFER OF SECURITIES TRIBUNAL(NCLT)
 NON-PAYMENT OF
DIVIDEND

OTHER MATTERS RELATED TO CENTRAL GOVERNMENT(ROC) CENTRAL GOVERNMENT(ROC)

PROSPECTUS, RETURN OF TRIBUNAL(NCLT) TRIBUNAL(NCLT)
ALLOTMENT ETC.
Sec 34-CRIMINAL LIABILTY FOR
MISSTATEMENT IN PROSPECTUS
• IF PROSPECTUS HAS
- any statement which is untrue/misleading
-omission or inclusion of any material information-likely to mislead
• Then,
- Every person who authorise the issue of such prospectus shall be liable under S.447

UNLESS- THE PERSON PROVES THAT

 Such statement/omission immaterial
 Had reasonable ground to believe that statement was true/inclusion or omission was
necessary(and believed upto the time of issue)
Sec 35-CIVIL LIABILITY FOR MISSTATEMENT IN PROSPECTUS

• If any person has subscribed for the securities acting on the

Prospectus which is misleading and has sustained any loss/damage-
the co. and the following ppl liable to compensate every person who
sustained loss/damage--

 director at the time of prospectus issue

Who has agreed to become director
Promoter of co.
Who has authorised the issue
Expert referred in S.26(5)
• Unless-
The person proves –
 The person withdrew consent to become director b4 issue
 Prospectus issued without knowledge/consent and on becoming
aware gave public notice
 The misleading statement purported to be made by expert-was
correct and fair representation & had reasonable ground till issue to
believe that person making it was competent and had given the
consent- and not withdrawn it
But, if it is proved-prospectus issued with intent to defraud the
applicants –every person shall be personally liable without limit
Section 36- Punishment for fraudulently
inducing persons to invest money
• Any person who KNOWINGLY or RECKLESSLY makes
statement-false/deceptive/misleading –to induce other person to
Any agreement to acquire/subscribing securities
Any agreement to obtain credit facilities from banks/FI
Liable under S.447
Section 37-action by affected persons-
• Aggrieved person may file suit under S.34 OR S.35 OR S.36
Golden rule for framing prospectus
• A prospectus is a document which should tell its prospective
shareholders as to what the company is about and what it proposes
to do along with prospects of the business of the company. Therefore,
there must be FULL,FRANK,HONEST DISCOSURE of all MATERIAL
FACTS in prospectus and NO material fact should be OMITTED or
MISSTATED
• While framing the Prospectus every company must observe this
GOLDEN RULE(propounded in the case of NEW BRUNSWICK AND
CANADA RAILWAY & LAND CO. Vs. MUGGERIDGE 1860)