In last post, public offer and private placement we have discussed public offer. In this post we will discuss Prospectus under Companies Act, 2013
Clause (70) of Section 2 of this Bill define “prospectus” means 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.
Section 26 deals with matters to be stated in prospectus.
MATTERS TO BE STATED IN PROSPECTUS (SECTION 26):
A prospectus may be issued by or behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company.
Information in Prospectus:
Every prospectus shall state following information:-
i. names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed;
ii. dates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time;
iii. a statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilised and unutilised monies out of the previous issue in the prescribed manner;
iv. details about underwriting of the issue;
v. consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of such other persons, as may be prescribed;
vi. the authority for the issue and the details of the resolution passed there for;
vii. procedure and time schedule for allotment and issue of securities;
viii. capital structure of the company in the prescribed manner;
ix. main objects of public offer, terms of the present issue and such other particulars as may be prescribed;
x. main objects and present business of the company and its location, schedule of implementation of the project;
xi. particulars relating to—
- management perception of risk factors specific to the project;
- gestation period of the project;
- extent of progress made in the project;
- deadlines for completion of the project; and
- any litigation or legal action pending or taken by a Government Department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;
xii. minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash;
xiii. details of directors including their appointments and remuneration, and such particulars of the nature and extent of their interests in the company as may be prescribed; and
xiv. Disclosures in such manner as may be prescribed about sources of promoter’s contribution.
Reports with Prospectus:
Every prospectus shall set out following reports for the purpose of financial information:
i. Reports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed;
ii. Reports relating to profits and losses for each of the five financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed. Where company has not completed five financial years than such report for all financial years is required.
iii. Reports made in the prescribed manner by the auditors upon the profits and losses of the business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus. Where company has not completed five financial years than such report for all financial years is required.
iv. Reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly.
Declaration of Compliance:
Every prospectus shall make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.
Other matters in Prospectus:
Clause (d) of Sub – section (1) of section 26 give unlimited power to central government to list other matters and set out other reports to be included in a prospectus.
Delivery of Prospectus with Registrar:
A copy of prospectus shall be delivered to the Registrar for registration signed by every person who is named as a director or proposed director of the company or by his duly authorised attorney on or before the date of its publication and only then it shall be issued by or on behalf of a company or in relation to an intended company.
Statement of an Expert:
A statement made by an expert shall be included only if expert is or was engaged or interested in the formation or promotion or management of the company and has given his written consent to the issue of the prospectus. Such consent of expert must not be withdrawn by his before the delivery of prospectus to the Registrar for registration and a statement to that effect shall be included in the prospectus.
Every prospectus issued shall state that a copy has been delivered to the Registrar and specify attached documents.
The registrar shall not register a prospectus all requirements has been complied with and the prospectus is accompanied by the consent in writing of all the person named in the prospectus.
Prospectus shall not be valid if it is issued more than ninety days after the date on which a copy thereof delivered to the Registrar.
If a prospectus is issued in contravention of the provisions of section 26, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.
VARIATION IN TERMS OF CONTRACT OR OBJECTS IN PROSPECTUS (SECTION 27):
A company may vary the terms of a contract refered in the prospectus or object for which the prospectus was issued, only under approval or authority given by way of special resolution.
The notice of such resolution to shareholders shall also be published in the newspapers (one in English and one in vernacular language) in the city where the registered office of the company is situated. These notices shall clearly indicate justification for such variation.
The shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or controlling shareholders at exit price as determined in accordance with regulation made by the Securities and Exchange Board of India.
Requirement in Deemed Prospectus (Section 25):
Section 26 as applied by Section 25 shall have effect as if —
- it required a prospectus to state in addition to the matters required by section 26 to be stated in a prospectus—
i. the net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and
ii. the time and place at which the contract where under the said securities have been or are to be allotted may be inspected;
- the persons making the offer were persons named in a prospectus as directors of a company.
Prospectus as a topic is long to discuss. We will discuss advertisement of prospectus, Shelf prospectus, Red herring prospectus and application in a future post.
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- PUBLIC OFFER AND PRIVATE PLACEMENT (Companies Act 2013): (aishmghrana.me)
- Alteration of Memorandum and Articles (companies Bill 2012) (aishmghrana.me)
- Incorporation of Company (companies Bill 2012) (aishmghrana.me)
- Commencement of Business and Registered Office (companies Bill, 2012) (aishmghrana.me)