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Level III: 301: Company Law & practice
- IVI. Naseemul H),e FCS
Prospectus
After obtaining the Certificate of Commencement of Business, the promoters and directors of a
public limited company, if unable or desire to raise necessary capitai for running the companv- or
for any other reasonable purpose/project, may invite the publii investors to subscrib.lnto it,
shares or debentures. The documents issued in respect of invitation to the public to subscribe the
shares or debentures of a company is called prospectus. In fact it is a set of printed materials
circulated and advertised in the newspapers.
The Companies Act, 1994 has not defined prospectus, although Sec-134to Sec-151 of,the
Act deal with the matters related with prospectus. There rvas a definition of prospectus in
the Companies Act, 1913 According to Sec 2 (14) of the Companies Act, tOt: a
prospectus means any prospectus, notice, circular, advertisement or any other invitation
or offering made to the public for subscription or purchase of any sharei or debentures of
a company.
The SEC Public Issue Rules, 2006 defines the prospectus as.
Prospectus means any document prepared for the purpose of communicating to the genernl
pttblic & compsny's plan to affirfor sale its securities under tlese rutes [Rile -2h]
The Securities & Exchange Ordinance, 1969 provides that no company shall make any public
offer for sale of its securities in Bangladesh without obtaining the ionsent of the Securities &
Exchange Commission. So, the consent of the Securities & Exchange Commission is required
E?["ffi;ffi:'ffi:l{J1.'fi#;:]ir and Schedure-rrls cru,*or to 23 orpart-r specines
the matters to be spe,cified in the prospectus, Part-II of the same Schedule specifies the iteports
to be Set Out and Part-III specifies the Provisions Applicable in the prospectus before its
publication in the media.
A company may have choice of various methods whereby its securities could be offered to the
public. In practice it will normally engage manger to the issue and underwriters and the
method of floatation mainly depends on their advice. The Securities B. Exchange
Commission lays down stringent rules and the Dhaka and Chittagong Stock Exchanges haie
also their orvn requirements. So that a prospectus issuing
"o*puny
has to follow issue
requirethents from three aspects - under the Companies Act, D9q,lhe Securities & Exchange
Ordinance, 1969 as required by the Securities & Exchange Commission and under the Listiig
Regulations as required by the Dhaka and chittagong Stock Exchanges.
A copy of the prospectus duly signed by the directorslmanagers of ihe issuing company musr
be submitted to the Registrar of Joint Stock Companies & Firms before its-circulition. tt is
notable that a prospectus after its publication becomes a public document and the Companies
Act, 1994 has put some restrictions on any of its change or alteration without upproual f.o*
the authority.
Conditions to be a prospectus:
a) It must be an invitation to the public;
b) Invitation must be made for or on behalf of the issuing company;
c) Invitation must be an offer to subscribe or purchase; and
d) Invitation must be related with shares or debentures or such other instruments.

2. Civil Liabilin for misstatement in Prospectus
Due to ihe untrue statement included in the prospectus the fciic'"iir-,S :e:.1::s shall be held
iiable to pav compensation to every person who subscribes tbr anr s::a:e. r,rr debentures
rn the faith of the prospectus for any loss or damage tirat mar hare sus,:rn:3
- Ereiv person who is a Director of the Companv at the time of issue cirne irrospectus.
- Ererv person who has authorized himself to be named and is nameci in the prospecrus
either as a Director or agreed to become a director, either immediatelr or alter an
interval of some time;
- Every person who is a Promoter of the Company; and
- Every Person who has authorized the issue of the prospectus
A person shall not be held liable if he could prove that -
a. having consented to become a Director of the Company, he withdrew his consent
before the issuance of the prospectus and that it was issued without his consent or
authority; or
b. the prospectus u'as issued without his knowledge or c,onsent. and that on becoming
aware of its issue he gave reasonable public notice forthwith that it was issued
without his knowledge or consent; or
c. that after the issue of the prospectus and before allotment there under, he, on
becoming aware of any untrue statement therein, withdrew his consent to the
prospectus and gave reasonable public notice of the withdrawal and of the reason
therefore, or
d. that upto the time of allotment of shares or debentures he had reasonable ground to
believe that the statement was true. (Sec-1a5)
Penaltv for untrue statement in the Prosnectus
Where a prospectus is issued containing any untrue statement every person who
authorized the issue of the prospectus shall be punishable with imprisonment for a term
up-to two years, or with a fine upto Tk. 5,000/- or with the both, unless he proves that
the statement was immaterial or that he had reasonable ground to believe, and did, up-to
the time of the issue of prospectus, believe that the statement wastrue. (S-i46)
Penaltv for Fraudulently inducing persons to invest moneY
Any person who either by know-ingly or recklessly making any statement, promise or
forecast which is false, deceptive or misleading or by, any dishonest concealment of
material facts, induces or attempts to induce another person or persons to invest money to
subscribe or acquire or dispose off or underwrite shares or debentures to secure a profit
from the yield of the shares or debentures shall be punishable. The punishment may be
with imprisonment for a term up-to five years or with fine which may extend to Tk.
15,000/- or with the both. (S-147)
Contents of Prqspectus
Matters to be specified in a prospectus and reports to be set out therein are provided in
the clauses of Part- I, Part -II and Part-III of the Schedule- III of the Companies Act,
1994. The prospectus is generally arranged in different sections or parts containing all
the details as required in the Schedule- III of the Companies Act, 1994
The SEC may also direct the issuing company to provide some more information and
details in the prospectus. If so directed it will also become obligatory on the part of the
concerned company to mention those in the prospectus.

3. The introductory part of the prospectus generally includes the follolvings:
Amout'tt of public issue showing the number of Shares/Debentures olfered for issue
and the value thereof;
Names and addresses of the Manager to the Issue. Underwriters, Trustees in case of
Debenture issue;
c Address of the Registered Office of the issuer,
d Authorized Capital of the Company with breakdown, ,
e. Declaration that the consent of the Securities and Exchange Commission (SEC) has
been obtained to the proposed issue under the Securities & Exchange Ordinance. l 969
as amended in 1993 and Public Issue Rules, 2006.
f. Declaration that the prospectus has been filed for registration with the Registrar of
Joirit Stock Companies and Firms;
g Opening and closing date of the Subscription of Shares/Debentures.
h. List of documents reports declarations and annexure referred to in the prospectus
i. Conditions as set by the Securities and E,xchange Commission regarding the particular
issue (uls-2CC of the Securities & Exchange Ordinance, 1969);
j Declaration by the Management of the issuing company regarding its responsibility in
respect of the prospectus and about approval from the SEC for any material changes
and Declaiation by the Issue Manager about approval from the Securities and
Exchange Commission for any material changes.
k. Due diligence certificates by the Issue Managers and Underwriters.
2. The following items may contain in the next part of the prospectus:
a. A brief description of the business and its operation;
b. Highlights of the project for which the capital is required to be raised including
the estimated IRR of the project, Pay Back Period and expected EPS per annum;
c. The risk factors involved in the project that may have adverse impact on the
performance and profitability. The management's perception on the risks should
also be included against the risk factors;
d. Details of share issue showing the subscription by the Sponsors/Directors, Foreign
Investors and proposed issue to the public including the ICB, employees of the
iompany and general public;
e. In case of debentures, details of such issue showing the amount reserved for
foreign investors, local financial institutions and amount reserved for the public;
f. Conditions of offer and allotment of shares including the right of preferential
allotment to any person/institution with price and consideration for such
preferential right to allotment;
g Basis of allotment in case of over-subscription;
h. The minimum subscription on which Directors will proceed to allotment;
i. Directors' view on the Company's earning potentiality and expected return to the
investors;
j Purpose of the public offering;
k. Financial and physical plan for uss of proceeds from the offer and completion of
various segments of the proposed project. This may include the composition of
membership, progress of construction of the project, product mix and
manufacturing process, production capacity, sources of plants and machinery,
technology, raril materials etc. and mode of procurement.
3 The next part of the prospectus may include the followings:
a. Underwriting arrangernent with the underwriters including the underwrites
obligations, rate of the underwriting commission and the commission lor taking up
of the un-subscribed shares/debenture, if any.
b. Brokerage to the Stock Exchanges Brokers.

4. c. Trustee Fee in case of debenture issue.
d Fees of the l4anagers to the lssue.
e. Estimated preliminary expenses with details in connection with the public issue
along with implementation schedule.
f. Directors' declaration that the underwriters have adequate resources to meet the
underwriting commitments in case of under-subscription of the issue.
g A declaration as to w-hether the Company's incomes, profits and gains lrom its
business activities qualify for exemption form income tax as providid in Section-
45 of the Income Tax Ordinance, 1984 and whether application has been or shall
be made for such exemption w-ithin 180 days from the date of commencement of
commercial operation.
The prospectus may also comprise the followings in connection with application for
shares/ debentures,
a. Minimum lot for which the application for Shares/Debentures may be made in the
prescribed format;
b, Names and addresses of the Stock Exchanges, Bankers to the Issue where the
application forms and prospectus shall be available.
c. Mode of subscription, payment and refund procedure to unsuccessful applicants.
d. Procedure of issue of allotment letters and fund warrants.
A part of the prospectus may be dedicated to the salient features and securities
provided for the debentures, if the prospectus is for debenture issue. It will also
include the schedule for payment of interest and repayment of the principle amount
over the period of redemption.
The prospectus may provide information regarding the rights of share holders/
debenture holders as to voting rights, any restriction or reservation on voting rights,
transfer of shares/ debentures, dividend policy, periodical information pursuant to
disclosure requirements etc.
The prospectus may highlight the financial forecasts i.e., the projected cost summary
including the local and foreign components of costs, mode of financing- reflecting the
equity and debt financing, projected income statements, balance sheet and cash flow
for at least five to ten years depending on the circumstances, projected profitability
indicators, liquidity and leverage ratios etc. The projected information are being
provided in order to enable the prospective investors to take decisions for investment
at their own.
A part of the prospectus may have room to highlight the management of the Company
which may include the followings.
a. The names, particulars, addresses, descriptions and occupations of -
- the directors or proposed directors;
the managing director or proposed managing director,
- the managing agent or proposed managing agent; and
- the manager or proposed manager; if any.
Where any such person is already a director andlot managing director or manager in
any other company/companies here in this clause the names of all those companies in
which such person or persons is/are directors, managing directors or managers,
managing agents or have interest therein are to be specified.
The directors' interest, remuneration etc. reflecting the directors' interest in the
company other than the share holdings and remuneration as provided in the Articles
of Association of Company;
- Number of Directors of the Company;
- The number of Shares to qualify to be a Director as fixed by the Articles of
Association;
- Whether any provision is laid in the Articles of Association as to the remuneration
of the Directors for their services in the Company as Directori Managing Director or

5. otherx'ise.
- Borros in-u pou,'ers of directors whether provided in the Articles of Association,
- p.pgrnlment and remuneration of the .4anaging Director.
- ames and addresses of Auditors, Advisers. Consultants of the Cornpany" if any;
- { reasonable time and place at rvhich the material contracts including copies of
{emorandum and Articles of Association, Undenvritine Agreements. Loan
Agreements, Investment Agreements, I,lortgage Deeds, if any, Trust Dgeds,
Trusteeship Agreement, if any, Consent of the Securities & E.xchange Commission
etc. may be inspected.
g. At the verge of the prospectus the Reports of the Auditors of the Company are
mentioned. In this section the foilowings are reported:
a. Auditors' Report to the Shareholders including the Balance Sheet, Profit & Loss
Account (where applicable) as of the date prior to the issue of the prospectus which
shall not be beyond 180 days
b. Auditors'Report under Part Ii of the Third schedule of the Companies Act, 1994
which shall include reports on the followings:
- Prof,it and Loss, Assets and Liabilities in respect of each of the 5 financial years
immediately preceding the issue of prospectus.
- If the company paid any dividend, rates of dividends paid for each class of shares in
each of the preceding 5 financial years and also the particulars of case in which no
dividend has been paid on any ofthose classes ofshares for any ofthose years.
Exhibits
The following documents should be filed as exhibits with the Application for Consent to an
Issue of Capital:
i. Memorandum & Articles of Association attested bJ' Managing Director of Issuer Company':
ii. Certificate of Incorporation and Certificate of Commencement of Business- attested copt'-
iii. Extract of Minutes of meeting of the Board of Directors for of paid up capital raising -
Copv attested by MD:
iv. Consent of the Directors to serve - An original signed b1.'all directors:
r'. Land Title Deed- photocopt, attested by the Managing Director:
vi. If Plant & Machinerr- rs reconditioned or second-hand - a certificate from SGS or Llor,ds
agencv on its economic life and price competitir,eness dulr,certified bi'the Chamber of
Commerce of the exporting countrv or the countrv of origin - in original
vii. All significant agreements of the Issuer- Cop-v attested by' MD:
viii. Banker's letter confirming opening of separate bank account for public issue purposes -
Cop-v attested by MD.
ir. Due Diligence Certificate from Investment Adviser - in original:
x. Due Diligence Certificate from Issue Manager - in original:
ri. Due Diligence Certificate from Underu'riter(s) - in original:
xii. Due Diligence Certificate from Debenture Trustee (if an1') - in original.
xiii.Agreement rvith a. Investment Adviser b. Issue Manager. c. Underwriters. and (d)
Debentures Trustees - Copy attested by MD:
xiv.Bankers' to the Issue's letter accepting their appointment b_v the Issuer - attested copl
xv. Joint venture agreement if an-v - photocopies attested b1,'MD.
xvi. Tax Holiday Approval Letter from NBR (if any) - attested copl'.

6. The Golden Rule or Golden Legacv in Prosrrectus
The duties of issuers of prospectus to be truthful in each and ever}, respect The Golden
Rule was enunciated by Kinderseley, VC inNew Brunswick Co. vs. N,{uggerridge" (1860)
and has come to be known as the Golden Legacy. Those who issue a prospectui hold out
to the public great advantages w'hich wiil accrue to the persons who will subscribe shares
in the proposed undertaking. Public is invited to subscribe into shares on the faith of the
representation contained in the prospectus. The public is at the mercy of the promoters of
the proposed Company.
Everything must, therefore, be stated with strict and scrupulous accuracy. Nothing should
be stated which is not factual and no fact should be omitted or overlooked" the existence
of which might in any degree affect the nature or quality of the privileges and advanta-qes
which the prospectus holds out as inducement to subscribe into shares. In short the tiue
nature of the Company's venture should be disclosed.
If concealment of any material fact has prevented an adequate appreciation of what was
stated, it would amount to misrepresentation. Thus, even if every specific statements is
literally true, the prospectus may be false by reason of the suppression of other material
factS, it conveys a false impression
Sometimes half u truth is no better than a down right falsehood

7. Lecture Synopsis for
Company Law & Practice-I
by M.Naseemul Hye, FCS
Offences under'l'he com Act-1994 relatins to Pro
Section Offences Offenders
Maximum Limit
of Penalty
r3s(4) Issuing of any form of application for shares
or debentures of a company unless the form
is issued with a Prospectus complying with
Section 135(3)
Every person acts in
contravention
Tk. 5.000
138(6) Issuing of prospectus without filing of a
copy with the Regisnar
Company and every
person knowingly &
willfullv so issuins
Tk. 5,000
l3e(1) Issuing prospectus, which does not comply
with Sections 136 or 137
Company & every
person responsible for
so issuing
Tk. 5.000
l40(3) Failure to deposit application moneys in a
separate bank a/c in a scheduled bank until
return is submitted
Company and every
officers responsible
Tk. 5.000
141
(4)
Failure to file statement in lieu of prospectus
before allotment where no prospectus issued
Company and directors Tk. 5,000
141(s) For falsification in statement in lieu of
Prospectus.
One who authorises for
filing
Imprisonment for 2
years or fine of
Tk. 5.000 or both
146(1) For mis-statement in prospectus. One who authorises the
issuance
Imprisonment for 2
years or fine of
Tk.5000 or both
t47 For alluring or enticing by mis-statement
in prospectus.
Every person
concerned
Imprisonment for
5 years or a fine of
Tk.15,000 or both
148(5) For violating provisions regarding restriction
of allotment under section 148f4)
Promoter, director or
concerned oerson
Tk. 5.000
l s0(s) Commencing business or exercising
borrowing powers in contravention; of
Section 150
Person responsible Tk. 1,000 every day
during which
contravention so
continues
rsr(4) Default in filing with the Registrar the
Return of Allotment of Shares &. in
producing before him contract relating to the
title of allottee of fully or partly paid-up
shares
Every officer who
knowingly a parly to
the default
Tk. 1,000 every day
during which default
continues
151(3) Default in inserting particulars of discount
in orosoectus and balance sheet
Company and officer. Tk. 500
1s4(6) Failure to include in balance sheet
particulars relating to redeemable
preference shares
Company and officer Tk. 2"000
388
(s)
Issuing, circulating or distributing
prospectus or application for shares &
debentures in contravention of Section 388
(Restriction on foreign cos.- incorporated or to
be incorporated outside Bangladesh, to issue
DrosDectus without filins to the Resistrar)
Person responsible for
so issuing
Tk. 10,000
3e0(3) House to house canvassing for sale of shares
of a Company incorporated outside
Bangladesh
Person responsible Tk. 500