Tuesday, 30 September 2014

Companies Act 1956: Prospectus

Prospectus is an offer document by which the company offers its shares and debentures to the public hence by prospectus company will offer its securities to public.
In Nash Vs Lynde case the M.D of the company issued a letter to the director of company and offered some securities the director sent the letter to the solicitor of the company  the solicitor to his client and the client to his friend and the friend sent it to his BIL, in this case it was decided by the court that these are all personnel offers and none of the above are public offers. In this case it was further decided that a prospectus must be issued to the public and it must not be a personnel offer between two persons.

Provisions regarding prospectus:
When a company issues prospectus then company has to fulfil some legal requirement of companies’ act these legal requirements are necessary otherwise prospectus cannot be issued.

Dating of prospectus:-
Company Law: Dating of Prospectus

When a prospectus is issued then a date of formation of prospectus is written on the prospectus this date is known as date of prospectus. The date of prospectus is relevant for issue of securities hence every prospectus must have a date.
A prospectus is issued to public within ninety (90) days of the dating otherwise the prospectus becomes invalid and securities cannot be issued by this prospectus.
When a prospectus is dated than company has a choice to write any date on the prospectus. The dating of prospectus is decided by the directors of company and not by the ROC.

Registration of prospectus:-
Every prospectus must be registered with the registrar of companies.
Vetting of prospectus: The company will prepare draft prospectus and copies of draft prospectus will be sent to ROC, SEBI and the Stock exchanges where shares are to be listed.
The ROC, SEBI and Stock Exchanges will suggest corrections and modifications in the prospectus and the company will have to implement these modifications in the prospectus. This whole procedure is known as Vetting of Prospectus.
After vetting a final prospectus is prepared and copies of the final prospectus are again given to the ROC, SEBI and Stock exchanges. The ROC will register the prospectus and the prospectus now can be issued to public.
When the prospectus is registered then it is necessary that the prospectus in properly signed and the consent of experts is taken for issue of prospectus.

Signing of Prospectus:
When a prospectus is signed then the signing must be done according to the provisions of companies act. In this concept the M.Ds’ and all the directors must sign the prospectus hence once the prospectus is signed only then it will be registered.

Expert’s consent:
Every company has some experts who authorize the issue of securities so of the company wants to issue prospectus then it must take the written consent of experts for issuing the prospectus.
The experts of a company include the legal advisers, auditors, other professionals liked architects required for the business of company.
The company must mention in the prospectus that experts consent has been taken and prospectus can be issued.

Allotment of securities after prospectus:
When a company issues prospectus for issue of securities then the allotment of securities must be made within 120 days of dating of prospectus.
If the securities are not allotted within 120 days then whole application money will become refundable by the company to the applicants this refund of money must be made within 130 days of dating of prospectus otherwise the directors of company will be liable to penalties and they are liable to refund the money personally and the corporate veil is lifted.

Listing of shares on stock exchange.
When a company wants to issue the securities to public then company must make an application for listing of securities on some stock exchange. If the company does not get the permission from the stock exchange then the share cannot be allotted and company will have to issue the prospectus once again. It is compulsory to make the application for listing on at least one stock exchange however the company may make application on more than one stock exchange. In this case the permission of listing must be received from all the stock exchanges.
 Contents of prospectus:
Every prospectus has basic contents as per companies act 1956 and as per SEBI guidelines in this case following are the main contents of prospectus.
General information:
These are the information regarding the company and its background.
Capital Structure:
It includes the share capital and breakup of share capital.
Terms of issue:
It shows the terms and conditions of issue of securities. E.g the purpose for which the security is issued.
Particulars of issue:
It includes the manner of making of application allotment money, time of making calls.
Information regarding the management:
It contains the information regarding the management (directors and M.D).

Every prospectus must have all the contents correctly otherwise the prospectus will become invalid.

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