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Prospectus part1
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  • 1. ProspectusIntermediate (IPC) CoursePaper 2: Law, Ethics, and CommunicationChapter 6 Unit 2Part 1Dr.V.Seshadri1
  • 2. Definition• Prospectus means any document describedand issued as prospectus and includes any• notice,• circular,• advertisement or other document• inviting deposit from public or inviting offersfrom public for subscription or purchase ofany share or debenture of a body corporate.Section2 (36)2
  • 3. Importance of ProspectusProspectus is an invitation to offer. Persons respondingto such invitation make an offer to buy shares ordebentures. Allotment is acceptance of such offer.All material facts shall be disclosed with scrupulousaccuracy. Since prospectus tends to create contract.Terms of contract mentioned in the prospectus shall notbe varied without the approval and authority of thecompany in general meeting (Section 61).3
  • 4. What Constitutes an Offer to Public?An Intro.4
  • 5. Section 67 (1) & Proviso to S 67(3)• An invitation to public means an invitationto any section of public selected asmembers, debenture holder or client of thecompanySection67 (1)• An invitation to subscribe to shares ordebenture made to 50 or more peopleshall be treated as invitation to public bycompanies other than non bankingfinancial companies and public financialinstitutions.ProvisotoSection67 (3)5
  • 6. Offer to Public – Who AcceptsIf an invitation or offer cannot be calculated to result eitherdirectly or indirectly in the shares or debentures becomingavailable for Subscription or Purchase by a person otherthan those receiving the invitation or offer, then it shall not betreated as invitation to public(Section 67(2)).The true test for determining an offer to public is not whoreceives the offer or invitation BUT who can accept it.6
  • 7. Important Cases1• A single private communication marked “confidential” passed on hand tohand does not amount to invitation to public though it may containproposed issue of shares (Nash v Lynde)2• Offering share to kith & kin to directors is not a invitation to public (RatanSigh Vs Moga transport co.ltd.)3• Determination of question of offer to public depends upon the facts andparticular circumstances and language of notice in each case. (Ratansigh v Moga transport co. Ltd)4• An offer to share holders of an existing company, the shares of the newcompany, in exchange of the shares of existing company, is not aninvitation to public.(Govt. securities and Investment co.ltd V Cristopher)7
  • 8. Prospectus ContentsAn Intro.8
  • 9. IntroductionPART I: General InformationPART II: Financial andstatutory informationPART III: Interpretation andexplanationsProspectus issued by thePUBLIC COMPANY shallcontain information, mattersand reports as required inSCHEDULE-II which is dividedinto 3 parts.9
  • 10. Part IInformation about the company generally.Capital structureTerms of issueParticulars of issue.Company Management and Project.Particulars about the issue made in the last three years.Details about outstanding litigation, Criminal Prosecution if any10
  • 11. Part II: Details of reports such as,A. General informationName and address of Company secretary, Legal advisor,Lead managers,Bankers to thecompany,Bankers to the issue and auditors.Procedure and time schedule for allotmentAuthority for the issueExpert opinion if anyConsent of directors, auditors, advocates and managers to the issue.11
  • 12. PART II: B. Financial information:Report by Auditors w.r.t Profit and Lossand Assets and LiabilitiesRate of dividend paid in each of thepreceding five financial years.Financial details of subsidiary companies ifany.12
  • 13. Part II: C. Statutory and other Info.Minimum subscriptionExpenses indicating separately the fee payable to advisors, registrar to theissue, managers to the issueand trustees for debenture holders.Underwriting commissionPurchase of propertyRevaluation of assetsMaterial contracts etc.13
  • 14. Part IIIInterpretation and explanations tocertain terms used in PART I andPART II.It shall indicate reasonable timeand place at which copies of allBalance sheets, Profit and LossAccount, if any on which thereport of the auditors is basedand material contracts and otherdocuments may be inspected.14

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