company law notes gret, Thesis of Company Secretarial Practice

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PROSPECTUS

CONTENTS

 INTRODUCTION

 MEANING AND DEFINITION OF PROSPECTUS.

 PUBIC OFFER AND PRIVATE PLACEMENT

 VARIOUS CATEGORIES OF PROSPECTUS

 MATTERS TO BE STATED IN PROSPECTUS

 LEGAL REQUIREMENT REGARDING ISSUE OF

PROSPECTUS

 ADVERTISEMENT OF PROSPECTUS

 MISLEADING PROSPECTUS OR MISSTATEMENT IN

PROSPECTUS

 GOLDEN RULE

 CONCLUSION

prospectus, its’ format, disclosures, remedy against

misstatement in prospectus, civil/criminal liabilities

of directors, penalty for fraudulent inducement to

purchase securities etc.

MEANING AND DEFINITION OF PROSPECTUS

• (^) A prospectus is a legal document issued by

companies that are offering securities for sale.

• (^) Section 2(70) of the Companies Act, 2013 defines a

prospectus as “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.”

Pubic Offer and Private Placement

• (^) Chapter III (Section 23 to Section 42) of the Companies

Act, 2013 deals with prospectus and allotment of

securities. It is divided into 2 parts.

• (^) Part I deals with public offer and
• (^) Part II deals with private placement.
• (^) According to section 23(1), a public company may issue

securities to public.

• (^) Section 23(2) lays down that a private company may issue

securities by way of rights issue or bonus issue in

accordance with the provisions of this Act.

a company (other than by way of public offer) through

issue of a private placement offer letter.

[only to a select group of persons identified by the

Board of Directors]

Private placement offer letter

• (^) The company has to issue private placement offer letter

in Form PAS-4. [Rule 14 of Companies (Prospectus and

Allotment of Securities ) Rules 2014].

 Private placement to be approved by special resolution.

 No fresh offer, in case of earlier offer being withdrawn,

pending allotments with respect to earlier offer etc.,

 All monies payable on subscription shall not be paid by

cash.

Maintenance of Record of Private Placement offer

• (^) Rule 14(3) of Companies (Prospectus and Allotment

of Securities) Rules, 2014 states that the company

shall maintain a complete record of private

placement offers in Form PAS-5.

• (^) A copy of such record along with the private

placement offer letter in Form PAS-4 shall be filed

with the Registrar with fee as provided in

Companies (Registration Offices and Fees) Rules,

PUBLIC OFFER

• (^) Explanation to Section 23 states that for the

purposes of Chapter III, "public offer" includes initial

public offer or further public offer of securities to the

public by a company, or an offer for sale of securities

to the public by an existing shareholder, through

issue of a prospectus.

• (^) A document shall be called a prospectus if it satisfy

two things:

• (^1). It invites subscription to shares or debentures or

invites deposits.

• (^2). The aforesaid invitation is made to the public.

Various Categories of Prospectus

Deemed Prospectus

• (^) Its called offer for sale of securities.
• (^) Section 25 of the companies Act, 2013 provides that

all documents containing offer of shares or

debentures for sale shall be included within the

definition of the term prospectus and shall be deemed

as prospectus by implication of law.

• (^) Where a company allots or agrees to allot any

securities of the company with a view to all or any of

those securities being offered for sale to the public,

Meaning of Shelf Prospectus

• (^) Any class or classes of companies as prescribed by

the Securities and Exchange Board of India may file

a shelf prospectus with the registrar of companies

at stage of the first offer of securities for a period of

one year.

Benefit of Filing Shelf Prospectus

• (^) A company filing a shelf prospectus with the

Registrar shall not be required to issue prospectus

afresh at every stage of offer of securities by it

within a period of validity of such shelf prospectus.

• (^) Issue to the public, updated information

memorandum along with shelf prospectus

Information Memorandum shall contain material facts

which pertains to -

• (^) Creation of New Charge; and
• (^) Changes in Financial position of company which has

occurred between the first offer of security, previous

offer of security and the succeeding offer of security.

• (^) Thus a red herring prospectus has to be filed with

the Registrar of companies at least three days prior

to the opening of the subscription list and the public

offer as provided under section 32(1) of the

Companies Act, 2013.

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.

Exception

• (^) 1 Where the form of application is issued to person

who is bona fide invited to enter into an

underwriting agreement.

• (^) 2 Where form of application is issued in relation to

shares or debentures which were not offered to the

public.

• (^3) Where the application is issued to existing

members or debenture holders of the company

whether with or without the right of renunciation.

• (^) 4 Where the application is issued in relation to

shares or debentures which are

• (^) (i) Uniform in all respects with shares or

debentures previously issued, and

• (^) (ii) Dealt in or quoted at a recognized stock

exchange.