Prospectus

What you should know :

5.1 Prospectus: What it is and why it is issued?
5.2 Various methods of raising of share capital
5.3 What are the statutory requirements for the issue
of prospectus?
5.4 Contents of prospectus
5.5 Statement in lieu of prospectus
5.6 Shelf prospectus
5.7 Information memorandum (book building)
5.8 Is there any liability f or mis-statement in
prospectus?.
5.9 What is the requirement to be satisfied for listing
of shares with SEBI? 1
5.1 What it is and why it is issued?
Means any document, described or issued as a
prospectus and includes any notice, circular
advertisement or other document inviting
deposits from the public or inviting offers from
the public for the subscription or purchase of any
shares, or debentures of, a body corporate.

Prospectus  Invitation to offer

Application for shares  Offer

Allotment of shares  Acceptance of the

offer,
resulting in a binding
contract. 2
A document would be considered a
prospectus only if it meets the following
requirements, viz.
- it should be in writing
- it should be issued by or on behalf of a body
corporate
- it should be issued to public
- it should contain invitation to public for making
deposits or for subscription of shares in or
debentures of a body corporate. 3
5.1a. Is the issue of prospectus
compulsory?

The issue of a prospectus by a company

is not compulsory in the following cases

- shares/debentures not offered to the

public
- private channels fundings

4
5.1b. SEBI’s powers under new
section 55A in respect of listed
companies

(i) Investor protection,

(ii) Promotion,
development and
regulation of securities market.

5
 ISSUES

Public Rights Preferential

Initial Public Offering Further Public Offering

(IPO) (FPO)

Fresh Issue Offer for Sale Fresh Issue Offer o

f r Sale

6
5.2 Apart from the issue of
prospectus, what are the other ways
of raising of capital?

R a is in g o f C a p ita l

P r iv a te P la c e m e n t B o u g h t- o u t D e a l Is s u e o f P r o s p e c tu s
( O ffe r fo r S a le )

7
5.3 What are the statutory requirements for
the issue of prospectus?
1. Contents of Prospectus:
2. Dating and signing of Prospectus:
3. Vetting/approval of prospectus
4. Registration of prospectus with ROC:
5. Issue within 90 days of registration
6. Terms of contract cannot be varied:
7. The expert's consent to the issue of prospectus.
8. Abridged prospectus must accompany application forms

9. Offer for sale by Issuing Houses is ‘deemed prospectus’

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5.4 CONTENTS OF PROSPECTUS

Contents as per sec 56

- General information
- Capital Structure
- Terms of the issue
- Particulars of issue
- Company, Management and project
- Stock market data
- Outstanding litigation’s

- Risk factors

- Disclosure as per SEBI guidelines mandatory in

addition to the requirement of schedule to the
Companies Act. 9
5.5 Statement in lieu of prospectus
- where company does not issue a
prospectus
- failure to raise the minimum
subscription
- must be filed at least three days before
any allotment of shares or debentures is
made.

Consequences of non-filing SLP – 10

5.6 Shelf prospectus (Section 60A)

a) Need.

b) Shelf prospectus, meaning.

c) Who shall file a shelf prospectus.

d) Registration of Shelf Prospectus.

e) Requirement of filing information memorandum.

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 Presentation on Book-
Building and
Listing of Securities

Presentation By

Dr. V.K.Jain
M.Com, LL.M., M.Phil, Ph.D.(Tax), ACS
PVS CORPORATE AND ALLIED SERVICES
e-mail:Jainsir@rediff.mail
S-13, “SABURI”, Bharat Nagar, NAGPUR-400
010.
 Book Building
Overview – SEBI Guidelines
1. Preliminary 2. Eligibility Norms
3. Pricing 4. Promoters Cont. & Lock
in
5. Pre Issue Obligations 6. Draft of Prospectus
7. Post Issue Obligation 8. Other Issue Reqment
9. Advertisement. 10. Debt Instrument
11.Book Building 12. Issue by DFI
13.Preferential Issue 14. OTCEI Issue
15.Bonus Issue 16. Operational Guide.
17.Miscellaneous 13
Book - Building A New Route of Capital
Issue
Chapter XI of the SEBI Guidelines, 2000

Object of Book- Building:

 To decide the fair price of shares.
 To garner the Investors Confidence.
 To provide Issuer and LM, the flexibility of the price &
demand discovery.

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 Pro cess o f Bo o k-b u i l d i n g

75 % Bo o k-Bu i l d i n g Pro cess 10 0 % Bo o k-b u i l d i n g Pro cess

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 BOOK – BUILDING
100% Book Building

QIBs Non-institutional Retail

MFs, Banks, Bidders Bidders
FIIs, VCF, > 1000 shares <
Pension Fund
1000 shares
Upto 50% of Minimum 15% Minimum
Net Offer to 35%
Public
Discretionary Proportionate Proportionate
Allotment Allotment Allotment

16
 BOOK – BUILDING
75% Book Building

QIBs Non-institutional Retail

MFs, Banks, Bidders Bidders
FIIs, VCF, > 1000 shares <
Pension Fund
1000 shares
Upto 50% of Minimum 15% Minimum
Net Offer to 35% at fixed
Public price BB
Discretionary Proportionate Proportionate
Allotment Allotment Allotment

17
 Eligibility Norms and Rules for
75% Book- Building Process

The option is available to the Issuer Company subject to the following-

I) Company should be eligible for the Public Issue under
the SEBI Guidelines.
(II) Available for reserved portion of the Issue.

Eligibility Norms and Rules for 75% Book- Building Process

(III) Underwriting shall be mandatory to the extent of net offer to the
Public.
(IV) 25% Securities to be offered to the Public.

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Principal Parties/Intermediaries
involved in Book- Building Process

1. The Issuer Company.

2. Book Running Lead Manager.
3. Lead Manager.
4. Syndicate Member (Underwriter)

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 BOOK BUILT ISSUES
How It’s Done
Price band and other issues decided

Issues opens for subscription

at least 3 working
days Issue closes for subscription
15 days of the closure of
the issue
Allotment made to the investors
7 days from the finalization of
allotment
Shares come to investor's demat account

Trading in shares starts 20

Other requirements of Book Building –
- Trading shall commence within 6 days of the closure
of the issue.
- Issuer to provide indicative floor price and no ceiling
price.
- Bids to remain open for atleast 5 days.
- Bids are submitted through syndicate members.
- Investors can bid at any price, retails investor have
option to bid at cut off price.
- Only electronic bidding is permitted.
- Bidding demand is displayed at the end of every day.
- The lead manager analyses the demand generated
and determines the issue price in consultation with the

issuer etc.
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 Green Shoe Option in an IPO
•The Green Shoe Option is a clause in the
underwriting agreement of an IPO,which allows to
sell additional shares, usually 15%, to the public if
the demand exceeds expectations and the stock
trades above its offering price.
•This option also known as the OVER
ALLOTMENT provision.
• It gets its name from the GREEN SHOE
COMPANY, which was the first company to allow
such an option.
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5.7 Information Memorandum
(Section 60B)
a) Meaning of Information Memorandum
b) Who may circulate Information
Memorandum
c) Red-herring prospectus
d. Final prospectus to be filed after
closing of the offer of securities

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 Information
memorandum

Red herring
Prospectus
(at least 3 days before the
opening of the offer)

Filing of
Complete Prospectus
(on closing of the offer)
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A Red Herring Is Variously Defined:

• dried, smoked,
•Herring The curing process turns the fish red.
•in finance, a preliminary prospectus for an
offering of stock, so called for the notice in red
type required by law at the top of the front page

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WHY RED HERRING 

(it is an IDIOM­METAPHOR)

There  is  no  price  or  issue size  stated  in  the  red 
herring,  and  it  is sometimes  updated  several 
times before being called the final prospectus.

 It is known as a red herring because it contains 
a  passage  in  red  that  states  the  company  is  not 
attempting  to  sell  their  shares  before  the 
registration is approved by the SEC.  26
5.8 IS THERE ANY LIABILITY FOR MIS-
STATEMENT IN PROSPECTUS?

A. Civil Liabilities for mis-statements in

prospectus
a. Remedies against the company.
- Rescission of contract
- Suit for damages

b. Remedies against directors.

- damages for fraudulent misrepresentation,
- compensation under section 62 of the Act,
- damages for non-compliance with the
requirements of section 56 of the Act.
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B. Criminal Liabilities for mis-statements in
prospectus

a) Section 63 provides for criminal

liability for misstatement in the
prospectus.

b) Penalty for Fraudulently Inducing

Persons to Invest Money.

c) Prohibition of allotment of shares in

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5.9 What is the requirement to be satisfied
for listing of shares with SEBI?
1. Compliance with the SEBI Guidelines
2. Holding of general meeting
3. Intimation of stock exchange
4. Appointment of managers to the issue
5. Appointment of various other agencies
6. Drafting of prospectus
7. Approval of prospectus
8. Vetting of prospectus
9. Filing of draft prospectus with Stock Exchanges
10. Approval of board of directors to prospectus and other
documents
11. Registration of prospectus with ROC
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12. Making application to Stock Exchange(s) for
Permission to enlist shares
13. Printing and distribution of prospectus and
application forms
14. Certificate relating to promoters’ contribution
15. Announcement and advertisement
16. Co-ordination with the bankers to the issue
17. Allotment of shares
18. Filing of other Forms with Registrar of Companies
19. Over-subscription not to be retained
20. Refund orders
21. Compliance report
22. Issuance of share certificates
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