This document discusses the key aspects of a prospectus under business law. It defines a prospectus as any document inviting deposits or offers from the public for shares or debentures. A prospectus must be in writing and provide essential information about the company. It outlines the requirements for registering a prospectus, details that must be included, and liabilities for misstatements. Directors, promoters, and experts can face civil and criminal liability for untrue statements in a prospectus.

1. Business Law 14

2. Prospectus
• Public Company raises capital from public by issue of
prospectus
• Prospectus is any document inviting deposits or offers
from public for subscription of shares or debentures
• Prospectus must be in writing, an oral invitation to
subscribe for shares or debentures is not prospectus
• A private company is prohibited from making an
invitation to public and hence it need not issue a
prospectus.
• Prospectus is the basis on which the prospective
investors form their opinion and take decisions as to the
worth of the company

3. Features of Prospectus
• Definition: Any document described or issued as a prospectus and
includes any notice circular, advt., or other document inviting
deposit from the public for subscription or purchase of any shares or
debentures of a body corporate.
• Prospectus must be invitation to public
• Prospectus must be in writing
• It is an offer to public
• Public could be any section of public such as elected members
,debenture holders or as clients of the person issuing the
prospectus
• Prospectus must be dated and date is taken as the date of
publication of prospectus
• Signing of Prospectus – must be signed by the proposed directors
or by their agents. In the case of existing companies, it should be
signed by all the directors

4. Registration of prospectus
• A prospectus can be issued by a company only
when the copy thereof has been delivered to the
Registrar for registration
• The registration must be made on or before the
date of publication thereof
• The copy must be signed by very person who is
named there in as the director of the company or
by his agent who is duly authorised.
• Every prospectus must state on the face of that
a copy has been delivered to the Registrar for
registration

5. Registration
• The prospectus must be issued within 90
days of the date on which a copy is
delivered for registration
• If prospectus is not registered, the
company and every person, who is
knowingly a party to the issue of the
prospectus, shall be punishable with fine
which may extend to Rs 50,000

6. Shelf prospectus
• Prospectus issued by any financial institution or bank for
one or more issues of the securities or class of securities
specified in that prospectus
• A company filing a shelf prospectus with the registrar
shall not required to file prospectus afresh at every stage
of offer of securities by it within a period of validity of
prospectus
• Any public sector company or schedule bank whose
main object is financing shall file self prospectus.
• Financing means making loans to or subscribing in the
capital of a private industrial enterprise engaged in
infrastructural financing or such other company as the
central government may notify in this behalf.

7. Shelf prospectus
• A company issuing shelf prospectus shall
not require to file prospectus afresh at
each stage of offer of securities.
• An information memorandum shall be
issued to the public along with shelf
prospects filed at the stage of the first offer
of securities and prospectus will be valid
for a year.

8. Information memorandum
• Process undertaken prior to the filing of
prospectus
• Demand for securities proposed to be issued by
a company is elicited, price and the terms of
issue is assessed, by means of notice, circular,
ad or document
• A public limited company can before issue of
securities circulate information memorandum to
the public prior to filing of a prospectus.

9. Red Herring Prospectus
• Does not have details of either price or number
of shares being offered or amount of issue
• Price is not disclosed, the number of shares and
upper and lower price bands are disclosed
• Issue price is stated and the number of shares
are determined later
• In case of book built issues it is a process of
price discovery and the pricing cannot be
discovered until the bidding process is
completed.

10. Red Herring Prospectus
• An RHP and draft offer can be filed with
the ROC without the price band, will notify
the floor price or price band by way of ad
one day prior to the opening of the issue
• In the case of book-built issues, on the
completion of bidding process, the details
of final price are included in the offer
document

11. Contents of Prospectus
• Matters to be stated in Prospectus
– Matters specified in Part I of Schedule II
– Reports specified in Part II of Schedule II
• Part I of Schedule II
– General information about the Company
– Capital Structure
– Terms of the present issue
– Particulars of the issue

12. Contents of Prospectus
– Company management and project
– Particulars of companies under the same
management
– Outstanding litigation
– Management perception of risk factors
• Part II of Schedule II
– General Information
– Financial information
– Statutory and other information

13. Liability for mis statements
• Civil liability
– Against the company
– Against the directors, promoters and experts
• Criminal Liability

14. Liability of misstatements in
Prospectus
• Civil Liability
• Criminal liability

15. Civil Liability
1. Against the company
Rescission of contract
Claim for damages

16. Rescission of contract
• The contract must be a material mis representation
• The statement must have induced the share holders to
take share
• The statement must be untrue: Giving false impression
• The deceived shareholder is an allottee and he must
have relied on the statements in the prospectus
• The omission of material fact must be misleading before
rescission is granted
• The proceeding of recission must be stated as soon as
the allottee comes to know of a misleading staement.

17. Damages for deceit
• Any person induced by a fradulent statement in
a prospectus to take shares is entitled to sue the
company for damages.
• He must prove the same matters in claiming
damages for deceit as in claiming for rescission
• He cannot both retain shares and get damages
against the company

18. Remedies against the directors,
promoters and experts
• The person who are liable to pay compensation
for any loss or damage to subscribers for any
shares or debentures on the faith of a
prospectus containing untrue statements are :
Directors
Persons who have authorised themselves to be
named as directors
Promoters
Persons who have authorised the issue of
prospectus

19. The liabilities of directors etc are
• Liability for damages for mis statement
• Liability for damages for non compliance
• Liability under the general law

20. Criminal Liability
• A prsopectus found containing an untrue
statement is punishable with imprisonment upto
2 years
• Or a fine upto Rs. 50,000
• He will not be liable if he can prove ; the
statement was immaterial,he had reasonable
reason to believe the statement was true.