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PROSPECTUS

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DR. KAJAL PURI

ASSTT. PROF IN PG DEPTT OF COMMERCE AND MANAGEMENT

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INTRODUCTION

Prospectus may be defined as -

“any document described or issued as a prospectus &includes any notice , circular , advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription of shares or debentures of a company.

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Dating : must be dated

Signing : a. Intended co – proposed

directors must be signed.

b. Existing co – every person

who is named as director.

Registration : a. must be registered on or

before the date of publication.

b. penalty for non- registration:

Rs.50,000/- .

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CONTENTS OF PROSPECTUS

Matters to be stated and reports to be set out in Prospectus. Important contents of prospectus are as follows –

Part I of schedule II :

  • General Information
  • Capital structure of the co
  • Terms of the present issue
  • Particulars of the issue
  • Co , Management and Project

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Part II of schedule II :

  • General Information
  • Financial Information
  • Statutory and other Information

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MISSTATEMENTS IN PROSPECTUS & THEIR CONSEQUENCES

If there is any mis-statement of a material fact in a prospectus.

OR

If the prospectus is wanting in any material fact there may arise-

a. Civil Liability

b. Criminal Liability

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CIVIL LIABILITY

I. Remedies against the co

1. Rescission of the contract

- He should apply for rescission

- Gets back money paid by him with

interest

Case : Rex vs Lord Kylsant

2. Damages for deceit (MONEY,MENTAL STRAIN)

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II. Remedies against the Directors , Promoters

and Experts

1. Liability for damages for misstatement in

prospectus

2. Liability under the General Law

sec 17 of Indian Contract Act, 1872 for

fraud

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CRIMINAL LIABILITY

Every person who is authorized to issue prospectus is punishable with –

  • Imprisonment which may extend to 2 yrs or
  • Fine with Rs.50,000/- or
  • With Both

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STATEMENT IN LIEU OF PROSPECTUS

Where a public co does not invite public to

subscribe for its shares , need no issue

prospectus to public, In such case the promoters

are required to prepare a draft prospectus

known as “ a statement in lieu of prospectus”

which should contain the information required

to be disclosed by Schedule III of the Act

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SHARES

The capital of a co is divided into certain divisible units of a fixed amount. These units are called ‘Shares’.

Types of Shares :

There are 2 kinds of shares –

I. Preference shares

II. Equity shares

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PREFERENCE SHARES

  • They have a preferential right to be paid dividend during the life time of the co.
  • They have a preferential right to the return of capital when the co goes into liquidation.

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KINDS OF PREFERENCE SHARES :

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  1. Cumulative Preference Shares

Dividend goes on accumulating till it is fully paid off.

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  1. Non – Cumulative Preference Shares
  2. Participating Prefrence Shares

Entitled fixed rate of dividend + share in the surplus profits.

  1. Non – Participating Preference Shares

Only a fixed rate of dividend

  1. Convertible Prefrence Shares

Convertible into equity shares

  1. Non – Convertible Prefrence Shares
  2. Redeemable Prefrence Shares

a. Articles should permit

b. Can be redeemed only out of profit

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EQUITY SHARES

Equity shares are those which are not preference shares.

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DEBENTURES

A company needs money to finance its activities from time to time.

a. A part their requirement is met by issue

of shares.

b. For the rest the co may resort to

borrowing.

The co borrows money by issue of debentures.

Debenture is issued by the co and it is usually in the form of a certification which is an acknowledgement of indebtedness.

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The debenture of a co are moveable property , transferable in the manner provided by the Articles.

A debenture holder does not have any right to vote in the co meetings.

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KINDS OF DEBENTURES :

Debentures may be of the following kinds –

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1. Bearer Debentures :

Also known as Unregistered Debentures payable to its bearer. And also these are regarded as ‘Negotiable Instruments’.

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  1. Registered Debentures :

Payable to registered holder whose name appears both on certificate and in the co’s register. They are transferable.

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  1. Secured Debentures :

Debentures which create some charge on the property of the co.

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  1. Unsecured Debentures
  2. Redeemable Debentures

They may be redeemed after sometime.

  1. Irredeemable or Perpetual Debentures

There is no period fixed for repayment of the principal amount.

  1. Convertible Debentures

Can be converted into preference or equity shares.

  1. Non – Convertible Debentures

They are to be duly paid as and when they mature.

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DIRECTORS

  • A company is an artificial person. It cannot act in its own person. It acts through the Directors.
  • The Directors , who occupy very important position in the co , are considered to be the brain of a co.
  • No body corporate , association or firm can be appointed director of a co.only an individual can be appointed as Director.

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  • Number of Directors :

Public co – minimum 3

Private co – minimum 2

APPOINTMENT OF DIRECTORS :

  1. First Directors –
  2. Usually named in the article
  3. Not named – subscribers appoint
  4. In the absence of (a) or (b) – subscribers hold the office until directors are duly appointed.

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2. Appointment of Directors by the co

In the case of a public co or a private co which is subsidiary of a public co at least 2/3rd of the total number of directors shall be liable to retire by rotation.

Directors are appointed by shareholders in general meeting.

3. Appointment of Directors by Directors

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