COMPANIES ORDINANCE, 1984 DEFINITION:
Prospectus means any document described or issued
as prospectus and includes
any notice, circular, advertisement or any other
communication, inviting offers from the public for the
subscription or purchase of any shares in or debentures
of, body corporate, inviting deposits from the public
other than deposits invited by a banking company or a
financial institution approved by the Federal
Government whether described as prospectus or
Company prospectus is released by company to inform the
public and investors of the various securities that are
available. These documents describe about mutual funds,
bonds, stocks and other forms of investments offered by
the company. A prospectus is generally accompanied by
basic performance and financial information about the
Prospectus is a formal legal document, which is required by
and filed with the SECP that provides details about an
investment offering for sale to the public, it should contain
the facts that an investor needs to make an informed
Prospectus is a mandatory document for limited
organization to commence their business, but its
complicated procedure delays the operation of any
business, therefore a no. of organizations hesitate
to issue Prospectus to general public for
subscription of share capital & Debenture.
WHICH COMPANIES ARE REQUIRED TO ISSUE
Every public listed company who intends to offer
shares or debentures of the company to the public.
Every private company who ceases to be a private
company and converts into a public company and
intends to offer shares or debentures of the
company to the public.
CONTENTS OF PROSPECTUS
1. The contents of the Memorandum with the particulars of
signatories and number of shares subscribed by them.
2. The number and value of shares.
3. Description of business to be undertaken and its
4. Any provision in the articles relating to remuneration of
directors and chief executives.
5. Particulars of the present and proposed directors, chief
CONTENTS OF PROSPECTUS
6. The amount of minimum subscription.
7. The date and time of the opening and closing of the
8. The amount payable on application for each share.
9. The number, description and amount of share capital
issued within the two preceding years along with the
amount of premium or discount, if any.
10. Name of the underwriters, if any along with opinion of
directors as to financial soundness of underwriters.
CONTENTS OF PROSPECTUS
11. The name and address of auditors and legal advisors.
12. The amount of preliminary expenses.
13. The right of voting at meeting s of the company.
14. Particulars of capitalization of any reserves or profits if
15. Particulars of surplus on revaluation of the assets and
the manner in which such surplus has been applied,
adjusted or treated.
TYPES OF PROSPECTUS
RED HEARING PROSPECTUS
Various forms in which the
prospectus can be issued.
Shelf Prospectus: Prospectus is normally issued by
financial institution or bank for one or more issues of
the securities or class of securities mentioned in the
There can be deemed prospectus also if it is issued by
the issue house
‘Information Memorandum’: It means a process, which
is undertaken prior to the filing of prospectus.
Even an Advertisement , that the shares are available is
considered to be prospectus
REQUIREMENTS OF PROSPECTUS
1. Prospectus must be dated i.e. publication date. (Sec. 52)
2. It must include an auditor’s report on last five years profit and loss
account and on balance sheet at last date on which accounts were
prepared being a date not more than 120 days before the date of issue
of the prospectus.
3. It must be issued/published not less than seven or more than thirty
days before the subscription date. (sect.53(2))
4. If prospectus includes a statement made by an expert, the expert must
not be engaged or interested in the formation or promotion or in the
management of the company. A written consent of the expert should
also be obtained before the issue of prospectus with the statement.
(sect. 54 & 55)
5. In case of a listed company approval of the SECP must be obtained
within sixty days before the date of issue of prospectus. However,
Commission may, impose such conditions as it may deem necessary.
(sect 57 (1) & (2))
6. A copy of prospectus must be sent to the registrar before the issue of
prospectus. (sect 57 (3))
7 . Registrar shall not register the prospectus unless the above
requirements have been complied with.
8 . A sufficient number of copies of the prospectus issued under sub-
section (1) of section 53 shall be made available at the registered office
of the company with the stock exchange at which the company is listed
or is proposed to be listed and with the bankers to the issue and the
prospectus in its full text or in such abridged form as may be prescribed
shall be published at least in one Urdu and one English daily newspaper
having circulation in the province where stock exchange is situated at
which the company is listed. (sect 53 (1A))
1. Expert includes an engineer, a valuer, an accountant, or every
other person whose profession gives authority to any
statement made by him.
2. Experts written consents are required to be obtained which
are not withdrawn before the issue of prospectus.
3. Statement is required to be included in the prospectus that
experts have given and not withdrawn their consents.
4. An expert shall not be a person engaged or interested in the
formation or in the management of the company.
DOCUMENTS REQUIRED TO BE ATTACHED TO THE
1. Consent of expert required under section 55; and
2. In the case of a prospectus issued generally;
a copy of contracts regarding remuneration of Chief Executive etc and in
case of an unwritten contract, a memorandum thereof, and
a report from the auditors regarding any adjustments to assets and
liabilities of the company and reason thereof.
LIABILITIES ARISING OUT OF
When there is any untrue statement in the
prospectus, there arises two types of liabilities:
LIABILITIES FOR MISSTATEMENT
CIVIL LIABILITY FOR MISSTATEMENT IN PROSPECTUS:
No person shall be liable for compensation of loss or damage if he proves
1. He withdrew his consent to become the director before the issue of
2. The prospectus was issued without his knowledge; or
3. After the issue of prospectus and before allotment , he became aware
that the prospectus was untrue and withdrew his consent and gave a
public notice of the withdrawal; or
4. As regards the untrue statement, the expert believes on reasonable
grounds that the statement was true, correct and fair representation.
CIVIL LIABILITY OF EXPERT (SECTION 59) :
Experts civil liability is limited to the opinion given by him in the
prospectus. He is not considered to be a person who has authorized
for issue the prospectus. The expert would not be held liable if he
proves any of the following,
1. That he had given the consent for the inclusion of his opinion in the
prospectus but he withdrew the consent before the prospectus was
filed for registration with the registrar.
2. That after registration of prospectus and before allotment of shares
he became aware of any untrue statement in his opinion and he
withdrew his consent and gave a reasonable public notice of such
3. That he believed up to the date of allotment that the statement was
true to the best of his competence.
CIVIL LIABILITY OF DIRECTORS (SECTION 59)
Directors’ civil liability expands to the whole of the issue as those
are the persons who have authorized for issue the prospectus. The
directors shall be responsible even for the untrue statement made by
the experts in the prospectus. A director can avoid civil liability if he
proves any of the following,
1. That the director had withdrawn his consent to become the
director and the prospectus was issued without his authority.
2. That the prospectus was issued without his knowledge and
when he became aware of the issuance of prospectus; he gave
a reasonable public notice of the fact.
CIVIL LIABILITY OF DIRECTORS (SECTION 59)
3. That he became aware of the untrue statement after issuance of
prospectus and he gave a reasonable public notice regarding such
4. That the statement was true copy or true extract from the opinion
made by any expert and the directors believe that the expert had
sufficient knowledge and ability to express the opinion.
5. That the statement was true copy or true extract taken from any
public official document.
Where a prospectus includes any untrue statement,
every person who signed or authorized the issue of
prospectus shall be punishable
with imprisonment for a term which may extend to TWO
years or a fine which may extend to TEN THOUSAND
rupees, or BOTH.
DEFENCES AVAILABLE AGAINST CIVIL AND CRIMINAL LIABILITY
1. A person is not liable for civil or criminal liability if he proves that:
the untrue statement was immaterial
he had reasonable ground to believe that the statement was true
as regards any matter not disclosed he proves that he had no
non-compliance arose from an honest mistake of fact on his part
the prospectus was issued without his knowledge or consent and
on becoming aware of its issue, he forthwith gave a reasonable
public notice of the fact
after the issue of prospectus but before the allotment he withdrew
his consent and he gave a reasonable public notice
2. Experts, bankers etc. are not liable merely on the basis of their
consents unless any material misstatement is there on their part.
PENALTY FOR FRAUDULENTLY INDUCING PERSONS TO
Any person who induces any other person by making false
statement to make investment in shares or debentures of a
company shall be liable to imprisonment up to three years
or with a fine up to Rs 20,000 or with both
FOLLOWING PERSONS SHALL NOT BE DEEMED TO HAVE
AUTHORIZED THE ISSUE OF PROSPECTUS:
1. An expert who has given his consent to issue prospectus
with his statement and
2. The auditor, legal advisor, attorney, solicitor, banker and
OFFER FOR SALE DOCUMENTS
(SECTION 61 & 62)
1. Owner of 10 percent or more shares of the company can make an
offer to the general public for divesting his shares to the public
with prior approval of Commission.
2. Such offer can be made only by issuing a document in the nature
of prospectus. This document is named as “Offer for Sale
Document” and all the provisions of law as applicable to the
prospectus apply to this document as if it is a prospectus issued by
3. The person making the offer shall be considered to be a director of
the company for the purpose of this document.
4. The directors of the company shall be responsible to the same
extent in case of this offering document as they are responsible in
case of a prospectus.
REGARDING PROSPECTUS (63 &
1. Untrue statement in context of prospectus includes a statement which
in misleading in the context in which it is used in the prospectus. If the
omission of any statement from a prospectus can be concluded as
misleading; then the prospectus would be considered as a prospectus
having untrue statement. (section 63 (1))
2. General public in context of offer for sale or invitation for subscription
of shares includes any section of public, including the existing
shareholders or debenture holders of the company. However section of
the public will not be taken as public when it is assured that the shares
or debentures shall not be available for subscription by anybody other
than those person to whom offer is made. Also section of public would
not be considered as public when the offer can be proved to be
domestic concern of the person making the offer. (section 65(1) & (2))
STATEMENT IN LIEU OF PROSPECTUS
1. It is a statement which is delivered by a company, having share capital
to the Registrar for registration, at least three days before the first
allotment of shares or debentures under the following conditions:
Where a company does not issue prospectus; or
Where a company has issued a prospectus but has not proceeded to
allot any of its shares offered to the public for subscription.
2. SILOP is to be signed by every person who is named therein as a
director or a proposed director of a company.
3. Where a company which is required to submit a SILOP does not comply
with the requirement, it can not allot shares. (section 69(1))
CONTENTS OF STATEMENT
IN LIEU OF PROSPECTUS
1. The name of the company.
2. The nominal share capital of the company divided into number of
ordinary shares and par value per share.
3. Description of the business to be undertaken and its prospects.
4. Names, addresses, description and occupations of the proposed or
appointed directors , chief executive, managing agent and secretary
of the company.
5. Provisions regarding the appointment and remuneration of the
above officers of the company.
5. Voting rights in the meetings of the company.
6. Numbers and the amount of shares and debentures agreed to be
7. Names, occupation and addresses of vendors of property
purchased or proposed to be purchased by the company.
8. Amount payable in cash, shares or debentures, to each vendor of
PROSPECTUS AND SILOP
1. Filed by a public listed company.
2. Has been defined in definitions
Sec. 2 (29)
3. Submitted to registrar,
commission and shareholders.
4. Is a document containing an
advertisement for invitation of
subscription from the public.
STATEMENT IN LIEU OF
1. Filed by a public unlisted
2. Has NOT been defined in
3. Submitted only to registrar.
4. Is not an invitation of
PROSPECTUS AND SILOP
5. Approval of commission must
be obtained within 60 days
before the issue of prospectus.
6. No prescribed form is
specified in this Ordinance.
7. No prospectus shall be issued
unless before the date of its
publication, a copy signed by the
directors or their agent has been
delivered to the registrar
STATEMENT IN LIEU OF PROSPECTUS:
5. Is not a kind of advertisement for
invitation of subscription.
6. Is filed on prescribed form.
7. It is filed with the registrar
concerned at least 3 days before
the first allotment of shares