Prospectus of a company

DEFINITION OF 'PROSPECTUS'
A formal legal document, which is required by and filed with the Securities and
Exchange Commission, that provides details about an investment offering for
sale to the public. A prospectus should contain the facts that an investor
needs to make an informed investment decision.Also known as an "offer
document."
INVESTOPEDIA EXPLAINS 'PROSPECTUS'
There are two types of prospectuses for stocks and bonds: preliminary and
final. The preliminary prospectus is the first offering document provided by a
securities issuer and includes most of the details of the business and
transaction in question. Some lettering on the front cover is printed in red,
which results in the use of the nickname "red herring" for this document. The
final prospectus is printed after the deal has been made effective and can be
offered for sale, and supersedes the preliminary prospectus. It contains
finalized background information including such details as the exact number
of shares/certificates issued and the precise offering price.
In the case of mutual funds, which, apart from their initial share offering,
continuously offer shares for sale to the public, the prospectus used is a final
prospectus. A fund prospectus contains details on its objectives, investment
strategies, risks, performance, distribution policy, fees and expenses, and fund
management.

What is a Prospectus of a company?

After getting the company incorporated, promoters will raise finances.
The public is invited to purchase shares and debentures of the company
through an advertisement. A document containing detailed information
about the company and an invitation to the public subscribing to the
share capital and debentures is issued. This document is called
prospectuses. Private companies cannot issue a prospectus because they
are strictly prohibited from inviting the public to subscribe to their
shares. Only public companies can issue a prospectus.

Section 2 (36) of the Companies Act defines prospectus as, A prospectus

means any document described or issued as prospectus and includes any
notice, circular, advertisement or other documents invent deposits from
public or inviting offers from the public for the subscription or purchase
of any shares in or debentures of a body corporate.
The prospectus is not an offer in the contractual sense but only an
invitation to offer. A document constructed to be a prospectus should be
issued to the public. A prospectus should have the following essentials.

There must be an invitation offering to the public.

The invitation must be made on behalf of the company or intended
company.

The invitation must to be subscribed or purchase.

The invitation must relate to shares or debentures.

A prospectus must be field with the Registrar of companies before it is
issued to the public. The issue of prospectus is essential when the
company wishes the public to purchase its shares or debentures.
If the promoters are confident of obtaining the required capital through
private contacts, even a public company may not issue a prospectus. The
promoters prepare a draft prospectus containing required information
and this document is known as a statement is lieu of prospectus. A
prospectus duly dated and signed by all the directors should be field with
Register of Company before it is issued to the public.
A prospectus brings to the notice of the public that a new company has
been formed. The company tries to convince the public that it offers best
opportunity for their investment. A prospectus outlines a detail the
terms and conditions on which the shares or debentures have been
offered to the public. Every prospectus contains an application from on
which an intending investor can apply for the purchase of shares or
debentures. A company must get minimum subscription within 120 days
from the issue of prospectus. If it fails to obtain minimum subscription
from the members of the public within the specified period, then the
amount already received from public is returned. The company cannot
get a certificate of commencement of business because the public is not
interested in that company.
Contents
The following matters are to be disclosed in a prospectus:

Name and full address of the company.

Full particulars about the signatories to the memorandum of

association and the number of shares taken up by them.

The number and classes of shares. The interest of shareholders in

the property and profits of the company.

Name, address and occupations of members of the Board of

Directors or proposed Directors.

The minimum subscription fixed by promoters after taking into

account all financial requirements at the beginning.

If the company acquires any property from vendors, their full

particulars are to be given.

The full address of underwriters, if any, and the opinion of

directors that the underwriters have sufficient resources to meet their
obligations.

The time of opening of the subscription list.

The nature and extent of interest of every promoter in the
promotion of the company.
The amount payable on application, allotment and calls.
The particulars of preferential treatment given to any person for
subscribing shares or debentures.

Particulars about reserves and surpluses.

The amount of preliminary expenses.

The name and address of the auditor.

Particulars regarding voting rights at the meeting of the company.

A report by the auditors regarding the profits and losses of the

company.

These are some of the contents which every prospectus must

include. The prospectus is an advertisement of the company, so the
company may give any information which promotes its interest. Any
information given in the prospectus must be true, otherwise the
subscribe can beheld guilty for misrepresentation.
Statement in Lieu of Prospectus
A public company raises its capital from the public and it issues
prospectus for this purpose. Sometimes, the promoters of a company
decide not to approach the public for raising necessary capital. They are
hopeful of raising funds from the friends and relations or through
underwriters. In that case a prospectus need not be issued but a
Statement in Lieu of Prospectus must be field with the registrar at least
three days before the first allotment of shares. Such a statement must be
singed by every person who is named therein as a director or proposed
director of the company. This statement will be drafted strictly in

accordance with the particulars set out in a part I of Schedule III of the
Act.

26. Matters to be stated in prospectus.

(1) Every prospectus issued by or on behalf of a public company
either with
reference to its formation or subsequently, or by or on behalf of any
person who is or has
been engaged or interested in the formation of a public company,
shall be dated and signed
and shall
(a) state the following information, namely:
(i) names and addresses of the registered office of the
company, company
secretary, Chief Financial Officer, auditors, legal
advisers, bankers, trustees, if
any, underwriters and such other persons as may be
prescribed;
(ii) dates of the opening and closing of the issue, and
declaration about
the issue of allotment letters and refunds within the
prescribed time;
(iii) a statement by the Board of Directors about the
separate bank account
where all monies received out of the issue are to be
transferred and disclosure of
details of all monies including utilised and unutilised
monies out of the previous
issue in the prescribed manner;
(iv) details about underwriting of the issue;
(v) consent of the directors, auditors, bankers to the
issue, experts opinion,
if any, and of such other persons, as may be prescribed;
(vi) the authority for the issue and the details of the
resolution passed
therefor;

(vii) procedure and time schedule for allotment and issue

of securities;
(viii) capital structure of the company in the prescribed
manner;
(ix) main objects of public offer, terms of the present
issue and such other
particulars as may be prescribed;
(x) main objects and present business of the company
and its location,
schedule of implementation of the project;
(xi) particulars relating to
(A) management perception of risk factors specific
to the project;
(B) gestation period of the project;
(C) extent of progress made in the project;
(D) deadlines for completion of the project; and
(E) any litigation or legal action pending or taken
by a Government
Department or a statutory body during the last five
years immediately
preceding the year of the issue of prospectus
against the promoter of the
company;
(xii) minimum subscription, amount payable by way of
premium, issue of
shares otherwise than on cash;
(xiii) details of directors including their appointments
and remuneration,
and such particulars of the nature and extent of their
interests in the company as
may be prescribed; and
(xiv) disclosures in such manner as may be prescribed
about sources of
promoters contribution;
(b) set out the following reports for the purposes of the
financial information,
namely:
(i) reports by the auditors of the company with respect to
its profits and
losses and assets and liabilities and such other matters as
may be prescribed;

(ii) reports relating to profits and losses for each of the

five financial years
immediately preceding the financial year of the issue of
prospectus including
such reports of its subsidiaries and in such manner as
may be prescribed:
Provided that in case of a company with respect to which
a period of five
years has not elapsed from the date of incorporation, the
prospectus shall set
out in such manner as may be prescribed, the reports
relating to profits and
losses for each of the financial years immediately
preceding the financial year of
the issue of prospectus including such reports of its
subsidiaries;
(iii) reports made in the prescribed manner by the
auditors upon the
profits and losses of the business of the company for each
of the five financial
years immediately preceding issue and assets and
liabilities of its business on
the last date to which the accounts of the business were
made up, being a date
not more than one hundred and eighty days before the
issue of the prospectus:
Provided that in case of a company with respect to which
a period of five
years has not elapsed from the date of incorporation, the
prospectus shall set
out in the prescribed manner, the reports made by the
auditors upon the profits
and losses of the business of the company for all financial
years from the date of
its incorporation, and assets and liabilities of its business
on the last date before
the issue of prospectus; and
(iv) reports about the business or transaction to which
the proceeds of the
securities are to be applied directly or indirectly;

(c) make a declaration about the compliance of the provisions

of this Act and a
statement to the effect that nothing in the prospectus is
contrary to the provisions of
this Act, the Securities Contracts (Regulation) Act, 1956 and
the Securities and Exchange
Board of India Act, 1992 and the rules and regulations made
thereunder; and
(d) state such other matters and set out such other reports, as
may be prescribed.
(2) Nothing in sub-section (1) shall apply
(a) to the issue to existing members or debenture-holders of a
company, of
a prospectus or form of application relating to shares in or
debentures of the
company, whether an applicant has a right to renounce the
shares or not under
sub-clause (ii) of clause (a) of sub-section (1) of section 62 in
favour of any
other person; or
(b) to the issue of a prospectus or form of application relating
to shares or
debentures which are, or are to be, in all respects uniform with
shares or debentures
previously issued and for the time being dealt in or quoted on a
recognised
stock exchange.
(3) Subject to sub-section (2), the provisions of sub-section (1) shall
apply to a
prospectus or a form of application, whether issued on or with
reference to the formation of
a company or subsequently.
Explanation.The date indicated in the prospectus shall be deemed
to be the date of
its publication.
(4) No prospectus shall be issued by or on behalf of a company or in
relation to an
intended company unless on or before the date of its publication,
there has been delivered to
the Registrar for registration, a copy thereof signed by every person
who is named therein as

a director or proposed director of the company or by his duly

authorised attorney.
(5) A prospectus issued under sub-section (1) shall not include a
statement purporting
to be made by an expert unless the expert is a person who is not, and
has not been, engaged
or interested in the formation or promotion or management, of the
company and has given
his written consent to the issue of the prospectus and has not
withdrawn such consent
before the delivery of a copy of the prospectus to the Registrar for
registration and a statement
to that effect shall be included in the prospectus.
(6) Every prospectus issued under sub-section (1) shall, on the face of
it,
(a) state that a copy has been delivered for registration to the
Registrar as
required under sub-section (4); and
(b) specify any documents required by this section to be
attached to the copy so
delivered or refer to statements included in the prospectus
which specify these
documents.
(7) The Registrar shall not register a prospectus unless the
requirements of this section
with respect to its registration are complied with and the prospectus
is accompanied by the
consent in writing of all the persons named in the prospectus.
(8) No prospectus shall be valid if it is issued more than ninety days
after the date on
which a copy thereof is delivered to the Registrar under sub-section
(4).
(9) If a prospectus is issued in contravention of the provisions of this
section, the
company shall be punishable with fine which shall not be less than
fifty thousand rupees but
which may extend to three lakh rupees and every person who is
knowingly a party to the
issue of such prospectus shall be punishable with imprisonment for a
term which may extend
to three years or with fine which shall not be less than fifty thousand
rupees but which may

extend to three lakh rupees, or with both.

Complete Guide To Investment Companies,

Funds And REITs

How To Read A Prospectus - Reading

A Prospectus

You've probably heard it said more than once that you should always consult
amutual fund's prospectus before handing over your money. The same advice
applies to unit investment trusts (UITs), exchange-traded funds (ETFs) and
REITS.
While mutual funds and UITs are legally required to provide a prospectus to
prospective investors, it's no secret that the size of this document and the type
of information inside can be hard to tackle, but don't be too overwhelmed.
Here is a guide to what a prospectus is, why it is important and what items
should be central to your considerations.
What Is a Prospectus?
A prospectus is a formal legal document, which is required by and filed with
theSecurities and Exchange Commission. It provides details about an
investment offering for sale to the public, including fees, investment objectives
and strategies, as well as the finer points of the past performance, risks,
performance, distribution policy, fees and expenses, and fund management.
You can obtain these documents directly from fund companies through mail,
email or phone. You can also get them from a financial planner or advisor.
Many fund companies also provide PDF versions of their prospectuses on
their websites.

How To Read A Prospectus Investment Objectives And Strategies

Investment Objectives
These are the fund's financial goals, which are reflected in the types of
securities chosen to achieve those goals. Types of investment objectives
include long-termcapital growth, stable income, high total return, etc.
Fund companies cannot change these objectives unless investors of the
fund consent to the changes through a vote.
It is important to determine whether the fund's goals match your
owninvestment goals.

For example, a fund with an above-average capital growth objective

would probably not be a good fit for an 89-year-old widow who needs
regular income from investments to cover day-to-day expenses.
Investment Strategies
This part of the prospectus explains the way in which a fund allocates
and manages its resources to achieve its investment objectives. Aspects
considered when designing such a strategy include setting goals for net
asset value, determining asset allocation, investment restrictions (such
as only investing in a certain industry) and deciding whether (and
how) derivatives may be used.
A fund's investment strategy, like its goals, should be in sync with your
investment style. For example, although a small cap fund and a large
cap equity fund are both aiming for long-term capital appreciation, they
are both using very different strategies to reach this goal. Before
choosing one type of fund over another, make sure you consider why
investing in any one of these asset types is right for you. Otherwise, you
might be in for some surprises!

How To Read A Prospectus - Risks And Past Performance

Risks
Because investors have varying degrees of risk tolerance,
the risk section of a prospectus is very important. It details the risks
associated with a particular fund, such as credit risk, interest rate
risk, market risk, etc.
To get the most out of this section, you should be familiar with what
distinguishes the different kinds of risk, why they are associated with
particular funds, and how they fit into the balance of risk in your
overall portfolio. For example, if a fund invests a large portion of its
assets into foreign securities, you need to understand that this may
pose significant foreign-exchange and country risk;but you also need to
determine whether this kind of risk works with other types of risk in your

portfolio in satisfying your tolerance.

Past Performance
This section shows you the fund's track record, but do remember the
common disclaimer that "past performance is not an indication of future
performance." Read the historical performance of the fund critically and
make sure to take into account both long- and short-term performance.
Also, make sure the benchmarkchosen by the fund is appropriate. For
example, using the performance of federal treasury bills as a benchmark
for an equity fund is useless; the S&P 500 is generally the accepted
benchmark for equities. In addition, keep in mind that many of the
returns presented in historical data don't account for tax, or some funds
calculate an after-tax return with a rate that may be higher or lower than
your own. Be sure to look at any fine print in these sections, as they
should say whether or not taxes have been taken into account.

How To Read A Prospectus Distributions, Fees And Management

Distribution Policy
The distributions a fund pays its investors come from realized capital
gains,dividends, interest or other income stemming from the securities
and investing activities of the fund. The distribution policy tells you how
these payments are made. Some funds distribute returns directly to
unitholders, while others reinvest the distributions back into the fund,
buying more units for fundholders.
Whether these distributions are paid in cash or reinvested, unitholders
have to pay taxes on them. If you are concerned about taxes, there are
tax-managed funds that limit income and capital gain distributions.
These tax-managed funds allow you to ensure that you maximize the use
of your tax-sheltered options, such as your 401(k) or IRA.
Fees and Expenses
This section is extremely important to consider, because fees and
expenses will eat into your total investment return from the fund. Here
you will find information on any back or front-end loads, 12B-1 fees and

the management expense ratio. Because these compromise your return

regardless of the fund's performance, it is rarely optimal to invest in
funds with loads.
Fund Management
Here you can discover how long your fund manager has been managing
your fund. Watch out for the fund that has been in operation significantly
longer than the fund manager has been managing it. The performance of
such a fund can be credited not to the present manager, but to the
previous ones. If the current manager has been managing the fund for
only a short period of time, look into his or her past performance with
other funds with similar investment goals and strategies. You can then
get a better gauge of his or her talent and investment style.
After reading the sections of the prospectus outlined above, you will
have a good idea of how the fund functions and what risks it may pose.
Most importantly, you'll be able to determine whether it is right for you. If
you need more information beyond what the prospectus provides, you
can consult the fund's annual report, which is available directly from the
fund company or through a financial professional.

Preliminary Prospectus
DEFINITION OF 'PRELIMINARY PROSPECTUS'
A first draft registration statement filed by a firm prior to proceeding with
an initial public offering of securities. The document, filed with the
Securities & Exchange Commission, is intended to provide pertinent
information to prospective shareholders about the company's business
description, management, strategic initiatives, financial statements and
ownership structure.

INVESTOPEDIA EXPLAINS 'PRELIMINARY

PROSPECTUS'
The SEC requires a preliminary prospectus to be printed with red ink on
the left side of the cover; as a result, the document has been nicknamed
the "red herring".

Role of Prospectus in a Company

Many governments feel that if they allow private companies to
issue prospectuses, the opposition and other pressure groups may
allege the involvement of government in the malpractices of
private companies. A company is bound to raise finances for its
sustenance and growth. For this purpose usually the public is
invited to purchase shares and debenture of the company through
an announcement.
A document containing detailed information about the company
and an invitation to the public regarding subscription to shares
and debentures is called a company prospectus. In many
countries private companies cannot issue a prospectus because
they are sternly forbidden from inviting the public to subscribe to
their shares.
Only public companies can issue a prospectus. Actually this is
done to avoid various kinds of malpractices that private
companies tend to indulge in. Many a time it has happened that
private companies have robbed public of their hard earned
money.
So, many governments feel that if they allow private companies to
issue prospectuses, the opposition and other pressure groups may
allege the involvement of government in the malpractices of
private companies.
Lets be clear about the fact that a prospectus is not an offer in
the contractual sense but only an invitation to offer. A document

construed to be a prospectus should be issued to the public.

A prospectus should have the fundamentals like, it must be an
invitation offering to the public and it must be made on the behalf
of the company. A prospectus must be filed with the registrar of
companies before it is issued to the public.
If the promoters are certain of obtaining the requisite capital
through private contacts, even a public company may not issue a
prospectus. The promoters prepare a summary prospectus
containing obligatory information and this document is known as
a statement representing a prospectus.
A prospectus duly dated and signed by all the directors is to be
filed to the registrar. A prospectus brings to the notice of the
public that a new company has been formed.
The company tries to persuade the public that it will provide the
best prospects for their investment. A prospectus outlines in detail
the terms and conditions on which the shares have been offered.
Usually, the orders for the procurement of shares are done via an
application that comes along with the prospectus.

What Is a Company Prospectus?

A company prospectus is a document that provides comprehensive
information about a company. This information can be used by prospective
investors to decide whether they want to invest and what kinds of investment
products they want to buy. Companies make their prospectuses available on
request to anyone who asks for them and many host versions on their
websites to make them easy to access.
When a company is preparing an initial public offering, it is required to file a
prospectus, along with other documents, with regulators. The regulators
review the information to confirm that it is accurate and complete. Passing a
review does not mean that a company is endorsed by regulators; it simply
indicates that the documentation provided is correct and the regulators have
approved the company for an initial public offering. A subsequent company
prospectus will be released each year with updated information.
There are legal requirements that describe what a company prospectus must
include, and these vary by region. As a general rule, the document needs to
contain information about the company that would help investors arrive at an

informed decision when they decide to invest. It also contains information

about the investment products, such as stocks and bonds, that the company
makes available.

Prospectus in Company Law

A prospectus means any document describe or issue as a prospectus and includes any
notice, circular, advertisement or other documents inviting deposits from the public or
inviting offers from the public for the subscription or purchase of shares in or debentures
of a day corporate.
Introduction
From the above definition, it is clear that a prospectus is a document that invites the
public to subscribe to the share capital or debentures of a company. If it does not do
that, it cannot be called a prospectus. According to the Companies (Amendment) Act,
1971, an invitation to the public inviting deposits is also deemed to be a prospectus.
Some companies do not directly to the public themselves, but allot the entire share
capital to an intermediary, which then offers the shares to the public by an
advertisement of its own. Any document by which such offer for sale to public is made is
deemed to be a prospectus[1].
After getting the company incorporated, promoters will raise finances. The public is
invited to purchase shares and debentures of the company through an advertisement. A
document containing detailed information about the company and an invitation to the
public subscribing to the share capital and debentures is issued. This document is called
prospectuses. Private companies cannot issue a prospectus because they are strictly
prohibited from inviting the public to subscribe to their shares. Only public companies
can issue a prospectus. Section 2 (36) of the Companies Act defines prospectus as, A
prospectus means any document described or issued as prospectus and includes any
notice, circular, advertisement or other documents invent deposits from public or
inviting offers from the public for the subscription or purchase of any shares in or
debentures of a body corporate[2].
The prospectus is not an offer in the contractual sense but only an invitation to offer. A
document constructed to be a prospectus should be issued to the public. A prospectus
should have the following essentials.

There must be an invitation offering to the public.

The invitation must be made on behalf of the company or intended company.

The invitation must to be subscribed or purchase.

The invitation must relate to shares or debentures.

A prospectus must be filed with the Registrar of companies before it is issued to the
public. The issue of prospectus is essential when the company wishes the public to
purchase its shares or debentures.
If the promoters are confident of obtaining the required capital through private
contacts, even a public company may not issue a prospectus. The promoters prepare a
draft prospectus containing required information and this document is known as a
statement is lieu of prospectus. A prospectus duly dated and signed by all the directors
should be field with Register of Company before it is issued to the public.
A prospectus brings to the notice of the public that a new company has been formed.
The company tries to convince the public that it offers best opportunity for their
investment. A prospectus outlines a detail the terms and conditions on which the shares
or debentures have been offered to the public. Every prospectus contains an application

from on which an intending investor can apply for the purchase of shares or debentures.
A company must get minimum subscription within 120 days from the issue of
prospectus. If it fails to obtain minimum subscription from the members of the public
within the specified period, then the amount already received from public is returned.
The company cannot get a certificate of commencement of business because the public
is not interested in that company[3].
Object of a prospectus
The objects of issuing a prospectus are as under:
1. To invite the public to invest in the shares or debenture of a market.
2.
To give a bureau of a condition on which the public is invited to invest in shares
and debentures.
3.
To make a declaration that the directors of the company are liable for the
condition stated in the prospectus.
Nature of prospectus:
As said earlier that the prospectus is an invitation to the public to invest in the shares or
debentures of a company. But the term public is nowhere defined in the Companies Act.
So, far as it is related to prospectus, public is meant to be the ordinary common
people[4]. Whether or not the invitation for investment is made to the public depends
upon some situation, such as:
1.
How many copies of the prospectus were printed?
2. To how many members of the public were the copies distributed.
3.
How many members of the public accepted the copies?
4.
Under what conditions did the member of the public accept the prospectus?
When the prospectus need to be issued
In the following situation, there is no need for a prospectus to be issued.
1.
When the shares and debentures are to be allotted to the existing holders of shares
and debentures.
2.
When the shares and debenture to be allotted are similar to the current (already
issued) shares and debentures that are being traded in a recognized stock exchange.
3.
When the allotment of shares and debenture is not permissible by law as in the
case of a private company.
4.
When the invitation is to some such person who has a contract for underwriting
the shares and debentures of the company[5].
Golden rule in prospectus
Prospectus is the basis of the contract between the company and the persons who incest
in the companys shares or debentures. The officers of the company have knowledge of
the companys present status and its prospects in future or have the means to acquire
such knowledge. But the potential investor has no such knowledge, nor the means to
acquire it. It, therefore, becomes the duty of those who issue the prospectus that they not
only projects the companys image in the right perspective but also makes sure that no
vital information which could be of interest to the potential investors in the companys
shares and debentures is left out from the companys prospectus. it therefore become
important that the prospectus states the basic important facts about the company with
utmost honesty and good faith and that no information that is important is twisted or
partially presented. That is what is refers to as the golden rule for making a
prospectus.
In short the following must be kept in mind when preparing the prospectus of a
company:
1.
The prospectus must be an honest statement of the companys profile; there must
be no misleading, ambiguous or erroneous reference to the company in its prospectus.

2.
Every important aspect of a contract of the company should be clarified.
3.
The contents of the prospectus should conform to the provision of the Companies
Act.
4. The restrictions on the appointment of directors must be kept in mind.
5.
The conditions of civil liability as laid down must be strictly adhered to issue and
registration of prospectus or legal requirement regarding issue of prospectus[6].
Legal requirement regarding issue of prospectus:
The Companies Act has defined some legal requirements about the issue and
registration of a prospectus. The issue of the prospectus would be deemed to be legal
only if the requirements are met.
1.
Issue after the incorporation: As a rule, the prospectus of a company can
only be issued after its incorporation. A prospectus issued by, or on behalf of a company,
or in relation to an intended company, shall be dated, and that date shall be taken as the
date of publication of the prospectus.
2.
Registration of prospectus: it is mandatory to get the prospectus
registered with the Registrar of Companies before it is issued to the public. The
procedure of getting the prospectus registered is as under:
a.
A copy of the prospectus, duly signed by every person who is named therein as a
director or a proposed director of the company must be filed with Registrar of
Companies before the prospectus is issued to the public.
b. The following document must be attached thereto:
(i) Consent to the issue of the prospectus required under any person as an expert
confirming his written consent to the issue thereof, and that he has not withdrawn his
consent as aforesaid appears in the prospectus.
(ii) Copies of all contracts entered into with respect to the appointment of the
managing director, directors and other officers of the company must also be filed with
Registrar.
(iii) If the auditor or accountant of the company has made any adjustments in the
companys account, the said adjustments and the reasons thereof must be filed with the
documents.
(iv) There must be a copy of the application which is to be filled for the issue of the
companys shares and debentures attached with the prospectus.
(v) The prospectus must have the written consent of all the persons who have been
named as auditors, solicitors, bankers, brokers, etc.
c.
Every prospectus must have, on the face of it, a statement that:
(i) A copy of the prospectus has been delivered to the Registrar for registration.
(ii) Specifies that any documents required to be endorsed by this section have been
delivered to the Registrar.
d.
A copy of the prospectus must be filed with the Registrar of Companies. The
Registrar should register the prospectus only when:
(i) The prospectus is dated. The date shall, unless the contrary is proved, be taken as
the date of publication of the prospectus.
(ii) The contents of prospectus conform to Section 56 of the Act.
(iii) The consent of the expert, if it is necessary, has been obtained. But such expert
should not be engaged or interested in the formation or promotion of the company.
(iv) The written consent of the expert with respect to the issue of his statement included
in the prospectus has been obtained.
If the above provision of law has been fulfilled, or the necessary documents have nit
been attached, the Registrar can refuse to register the companys prospectus.

e. According to the Section 60(4), no prospectus shall be issued more than ninety days
after the date on which a copy thereof is delivered for registration. Of the prospectus is
so issued. It shall be deemed to be a prospectus a copy of which has not been delivered
to the Registrar.
If a prospectus issued in contravention of the above stated provisions, then the
company and every person who knows a party to the issue of the prospectus shall be
punishable with a fine[7].
Contents of prospectus
The main contents of a prospectus are:
1.
Main object of the company with the names, addresses, description and occupation
of signatories to the memorandum and the number of shares subscribed for by them.
2.
Number and classes of shares and the nature and extent of the interest of holders
thereof in the property and profits of the company.
3.
The number of redeemable preference shares intended to be issued and the date of
redemption or where no date is fixed; the period of notice required for redeeming the
share s and proposed method of redemption.
4.
The number of shares. If any, fixed by the Article as the qualification of a director
and the remuneration of the directors for the service.
5.
The names, occupation and addresses of directors, managing director and
manager together with any provision in the Articles or a contract regarding their
appointment remuneration or compensation for loss of office.
6. The time of opening of the subscription list should be given in the prospectus.
7.
The amount payable on application and allotment on each share should be stated.
If any prospectus is issued within two years, the details of the shares subscribed for any
allotted.
8.
The particular about any option or preferential right to be given to any person to
subscribe for shares or debentures of the company.
9.
The number of shares or debentures which within the two preceding year been
issued for a considerations other than cash.
10. Particulars about premium received on shares within two preceding years or to be
received.
11. The amount or rate of underwriting commission.
12. Preliminary expenses.
13. The names and addresses of auditors, if any, of the company.
14. Where the shares are of more than one class, the rights of voting and rights as to
capital and dividend attached to several classes of shares.
15. If nay reserve or profits of the company have been capitalized, particulars of
capitalizations and particulars of the surplus arising from any revaluation of the assets
of the company.
16. A reasonable time and place at which copies of all accounts on which the report of
auditors is based may be inspected[8].
Conclusion
A public company raises its capital from the public and it issues prospectus for this
purpose. Sometimes, the promoters of a company decide not to approach the public for
raising necessary capital. They are hopeful of raising funds from the friends and
relations or through underwriters. In that case a prospectus need not be issued but a
Statement in Lieu of Prospectus must be filed with the registrar at least three days
before the first allotment of shares. Such a statement must be signed by every person
who is named therein as a director or proposed director of the company. This statement

will be drafted strictly in accordance with the particulars set out in a part I of Schedule
III of the Act.
1. INTRODUCTION
Financial markets have an important relationship with economic
development. A company decides to issue securities for different
reasons; the main reason being raising capital to meet its financial
requirements may be for starting a venture, repaying debts, expansion
and diversification. This actually reflects indulgence of enormous
investor wealth for the sublime reason of economic development. This
economic dependence of the corporate sector is a compelling rationale
for an orderly regulated environment that boosts investor confidence
and assures conformity with prescribed norms. It helps in creating
conducive ownership base and wide capacities to create an impact on
the national economy. When an investor buys securities he is enabling
the company to carry on its business using those funds. In India a
company planning to issue securities shall abide by relevant provisions
of (a) Securities Contracts (Regulation) Act, 1956, (b) Securities
Contracts (Regulation) Rules, 1957, (c) Companies Act, 2013
(hereinafter referred to as the Act) and The Companies ( Prospectus and
Allotment of Securities) Rules, 2014, (d) Securities and Exchange Board
of India Act, 1992 and the rules and regulations made there under.
MATTERS TO BE STATED IN PROSPECTUS
According to section 26(1) of the Act read with Companies (Prospectus
and Allotment of Securities) Rules, 2014 (hereinafter referred to as
Rules), the following are the matters to be included in a prospectus:
(i) Names and addresses of the registered office of the company,
Company Secretary, Chief Financial Officer, auditors, legal advisers,
bankers, trustees, if any, underwriters and such other persons as may
be prescribed. The rules provide that the names, addresses and contact
details of the corporate office of the issuer company, compliance officer
of the issuer company, merchant bankers and co-managers to the issue,
registrar to the issue, bankers to the issue, stock brokers to the issue,
credit rating agency for the issue, arrangers, if any, of the instrument,
names and addresses of such other persons as may be specified by the
Securities and Exchange Board in its regulations shall be included in
prospectus.
(ii) Dates of the opening and closing of the issue, and declaration about
the issue of allotment letters and refunds within the prescribed time;
The rules clearly specify that the dates of opening and closing of the
issue shall be prominently disclosed. Further the rules provide that the

Board or the Committee authorized thereof shall make a declaration in

the prospectus that the allotment letters shall be issued or application
money shall be refunded within fifteen days from the closure of the
issue or such lesser time as may be specified by SEBI or else the
application money shall be refunded to the applicants forthwith, failing
which interest shall be due to be paid to the applicants at the rate of
fifteen per cent per annum for the delayed period. (iii) A statement by
the Board of Directors about the separate bank account where all
monies received out of the issue are to be transferred and disclosure of
details of all monies including utilised and unutilised monies out of the
previous issue in the prescribed manner. The rules specify that the a
statement shall be given by the Board of directors that all monies
received out of the issue shall be transferred to a separate bank account
maintained with a Scheduled Bank. Section 2(80) of the Act scheduled
bank means the scheduled bank as defined in clause (e) of section 2 of
the Reserve Bank of India Act, 1934. The referred section enumerates a
list of scheduled banks under second schedule of the Reserve Bank of
India Act, 1934. Further the aforesaid rules provide that the details of
all utilized and unutilised monies out of the monies collected in the
previous issue made by way of public offer shall be disclosed and
continued to be disclosed in the balance sheet till the time any part of
the proceeds of such previous issue remains unutilized indicating the
purpose for which such monies have been utilized, and the securities or
other forms of financial assets in which such unutilized monies have
been invested.
(iv) Details about underwriting of the issue. As per the rules, the details
about underwriting of the issue shall include the names, addresses,
telephone numbers, fax numbers and e-mail addresses of the
underwriters and the amount underwritten by them. (v) Consent of the
directors, auditors, bankers to the issue, experts opinion, if any, and of
such other persons, as may be prescribed. As per the rules, the consent
of trustees, solicitors or advocates, merchant bankers to the issue,
registrar to the issue, lenders and experts shall also be included in
prospectus. (vi) The authority for the issue and the details of the
resolution passed therefor. (vii) Procedure and time schedule for
allotment and issue of securities. (viii) Capital structure of the company
in the prescribed manner. As per the rules, capital structure of the
company shall be presented in the following manner: (i) (a) the
authorised, issued, subscribed and paid up capital (number of securities,
description and aggregate nominal value); (b) the size of the present
issue; (c) the paid up capital- (A) after the issue; (B) after conversion of
convertible instruments (if applicable); (d) the share premium account
(before and after the issue); (ii) The details of the existing share capital
of the issuer company in a tabular form, indicating therein with regard

to each allotment, the date of allotment, the number of shares allotted,

the face value of the shares allotted, the price and the form of
consideration. In the case of an initial public offer of an existing
company, the details regarding individual allotment shall be given from
the date of incorporation of the issuer and in the case of a listed issuer
company the details shall be given for five years immediately preceding
the date of filing of the prospectus.
The issuer company shall also disclose the number and price at which
each of the allotments were made in the last two years preceding the
date of the prospectus separately indicating the allotments made for
considerations other than cash and the details of the consideration in
each case. (iii) main objects of public offer, terms of the present issue
and such other particulars as may be prescribed. As per the rules the
prospectus to be issued shall contain the following particulars, namely: (a) the objects of the issue; (b) the purpose for which there is a
requirement of funds; (c) the funding plan (means of finance); (d) the
summary of the project appraisal report (if any); (e) the schedule of
implementation of the project; (f) the interim use of funds, if any (x)
main objects and present business of the company and its location,
schedule of implementation of the project. (xi) particulars relating to
a. management perception of risk factors specific to the project; b.
gestation period of the project; c. extent of progress made in the
project; d. deadlines for completion of the project; and e. any litigation
or legal action pending or taken by a Government Department or a
statutory body during the last five years immediately preceding the year
of the issue of prospectus against the promoter of the company. The
rules with respect to sub part (e) states that the prospectus to be issued
shall contain the following details and disclosures, namely:- (i) the
details of any litigation or legal action pending or taken by any Ministry
or Department of the Government or a statutory authority against any
promoter of the issuer company during the last five years immediately
preceding the year of the issue of the prospectus and any direction
issued by such Ministry or Department or statutory authority upon
conclusion of such litigation or legal action shall be disclosed;
(ii) the details of pending litigation involving the issuer, promoter,
director, subsidiaries, group companies or any other person, whose
outcome could have material adverse effect on the position of the
issuer; (iii) the details of pending proceedings initiated against the
issuer company for economic offences; (iv) the details of default and
non-payment of statutory dues etc. (xii) minimum subscription, amount
payable by way of premium, issue of shares otherwise than on cash.
(xiii) details of directors including their appointments and
remuneration, and such particulars of the nature and extent of their
interests in the company as may be prescribed. As per the rules the

details of directors including their appointment and remuneration, and

particulars of the nature and extent of their interests in the company
shall be disclosed in the following manner, namely:- (i) the name,
designation, Director Identification Number (DIN), age, address, period
of directorship, details of other directorships; (ii) the remuneration
payable or paid to the director by the issuer company, its subsidiary and
associate company; shareholding of the director in the company
including any stock options; shareholding in subsidiaries and associate
companies; appointment of any relatives to an office or place of profit;
(iii) the full particulars of the nature and extent of interest, if any, of
every director: (a) in the promotion of the issuer company; or (b) in any
immoveable property acquired by the issuer company in the two years
preceding the date of the Prospectus or any immoveable property
proposed to be acquired by it.
(iv) where the interest of such a director consists in being a member of
a firm or company, the nature and extent of his interest in the firm or
company, with a statement of all sums paid or agreed to be paid to him
or to the firm or company in cash or shares or otherwise by any person
either to induce him to become, or to help him qualify as a director, or
otherwise for services rendered by him or by the firm or company, in
connection with the promotion or formation of the issuer company shall
be disclosed. (xiv) disclosures in such manner as may be prescribed
about sources of promoters contribution; As per the rules the sources
of promoters contribution, if any, shall be disclosed in the following
manner, namely:- (i) the total shareholding of the promoters, clearly
stating the name of the promoter, nature of issue, date of allotment,
number of shares, face value, issue price or consideration, source of
funds contributed , date when the shares were made fully paid up,
percentage of the total pre and post issue capital; (ii) the proceeds out
of the sale of shares of the company and shares of its subsidiary
companies previously held by each of the promoters; (iii) the disclosure
for sources of promoters contribution shall also include the particulars
of name, address and the amount so raised as loan, financial assistance
etc , if any, by promoters for making such contributions and in case of
own sources, complete details thereof. The Prospectus shall also contain
the following reports for the purpose of financial information: i. Reports
by the auditors of the company with respect to its profits and losses and
assets and liabilities and such other matters as may be prescribed. The
rules under the prescribed power provide that (a) reports by the
auditors with respect to profits and losses and assets and liabilities shall
also include the amounts or rates of dividends, if any, paid by the issuer
company in respect of each class of shares for each of the five financial
years immediately preceding the year of issue of the prospectus, giving
particulars of each class of shares on which such dividends have been

paid and particulars of the cases in which no dividends have been paid
in respect of any class of shares for any of those years; and
b) if no accounts have been made up in respect of any part of the period
of five years ending on a date three months before the issue of the
prospectus, a statement of that fact accompanied by a statement of the
accounts of the issuer company in respect of that part of the said period
up to a date not earlier than six months of the date of issue of the
prospectus indicating the profit or loss for that period and assets and
liabilities position as at the end of that period together with a certificate
from the auditors that such accounts have been examined and found
correct and the said statement may indicate the nature of provision or
adjustments made or which are yet to be made. ii. reports relating to
profits and losses for each of the five financial years immediately
preceding the financial year of the issue of prospectus including such
reports of its subsidiaries and in such manner as may be prescribed:
Provided that in case of a company with respect to which a period of five
years has not elapsed from the date of incorporation, the prospectus
shall set out in such manner as may be prescribed, the reports relating
to profits and losses for each of the financial years immediately
preceding the financial year of the issue of prospectus including such
reports of its subsidiaries; The rules under the prescribed power
provides reports relating to profits and losses for each of the five
financial years or where five financial years have not expired, for each
of the financial year immediately preceding the financial year of the
issue of the prospectus shall: (a) if the company has no subsidiaries, so
far as regards its profits and losses, deal separately with the profits or
losses of the company (distinguishing items of a non-recurring nature)
for each of the five financial years immediately preceding the year of the
issue of the prospectus; and (b) if the company has subsidiaries, deal
either - (i) as a whole with the combined profits or losses of
itsProspectus and Allotment of Securities 11 subsidiaries, so far as they
concern members of the issuer company; or (ii) individually with the
profits or losses of each subsidiary, so far as they concern members of
the issuer company; or (iii) as a whole with the profits or losses of the
company, and, so far as they concern members of the issuer company,
with the combined profits or losses of its subsidiaries. (c) The mode
adopted at b above should be specified in the prospectus iii. reports
made in the prescribed manner by the auditors upon the profits and
losses of the business of the company for each of the five financial years
immediately preceding the issue and assets and liabilities of its business
on the last date to which the accounts of the business were made up,
being a date not more than one hundred and eighty days before the
issue of the prospectus: Provided that in case of a company with respect
to which a period of five years has not elapsed from the date of

incorporation, the prospectus shall set out in the prescribed manner, the
reports made by the auditors upon the profits and losses of the business
of the company for all financial years from the date of its incorporation,
and assets and liabilities of its business on the last date before the issue
of prospectus; and The rules provide that the reports made by the
auditors in respect of the business of the company shall be stated in the
prospectus in the manner provided in rules for subsection 26(1) (b)(ii)
(above stated). iv. reports about the business or transaction to which
the proceeds of the securities are to be applied directly or indirectly;
Section 26(1)(c) of the Act provides that the issuer company shall make
a declaration in the prospectus about the compliance of the provisions
of this Act and a statement to the effect that nothing in the prospectus
is contrary to the provisions of this Act, the Securities Contracts
(Regulation) Act, 1956 and the Securities and Exchange Board of India
Act, 1992 and the rules and regulations made thereunder; and12
Prospectus and Allotment of Securities Under the empowerment of
delegated authority under section 26(1)(d) of the Act, the rules state
other information, matters and reports, as under to be stated in the
prospectus: (1) If the proceeds, or any part of the proceeds, of the issue
of the shares or debentures are or is to be applied directly or indirectly
(a) in the purchase of any business; or (b) in the purchase of an interest
in any business and by reason of that purchase, or anything to be done
in consequence thereof, or in connection therewith; the company will
become entitled to an interest as respects either the capital or profits
and losses or both, in such business exceeding fifty per cent, thereof; a
report made by chartered accountants (who shall be named in the
prospectus) upon: (i) the profits or losses of the business for each of the
five financial years immediately preceding the date of the issue of the
prospectus; and (ii) the assets and liabilities of the business as on the
last date to which the accounts of the business were made up, being a
date not more than one hundred and twenty days before the date of the
issue of the prospectus; (c) In case of purchase or acquisition of any
immovable property including indirect acquisition of immovable
property for which advances have been paid to even third parties, the
following disclosures shall be made- (i) the names, addresses,
descriptions and occupations of the vendors; (ii) the amount paid or
payable in cash, to the vendor and, where there is more than one
separate vendor, or the company is a sub-purchaser, the amount so paid
or payable to each vendor, specifying separately the amount, if any,
paid or payable for goodwill; (iii) the nature of the title or interest in
such property proposed to be acquired by the company; (iv) short
particulars of every transaction relating to the property completed
within the two preceding years,in which any vendor of the property to
the company or any person who is, or was at the time of the transaction,
a promoter, or a director or proposed director of the company had any

interest, direct or indirect, specifying the date of transaction and the

name of such promoter, director or proposed director and stating the
amount payable by or to such vendor, promoter, director or proposed
director in respect of the transaction. (2) Further the rules provide that
a report shall be made by Chartered Accountants (who shall be named
in the prospectus) if (i) the proceeds, or any part of the proceeds, of
the issue of the shares or debentures are or is to be applied directly or
indirectly in any manner resulting in the acquisition by the company of
shares in any other body corporate; and (ii) by reason of that
acquisition or anything to be done in consequence thereof or in
connection therewith, that body corporate will become a subsidiary of
the company. Such report prepared by chartered accountant shall be
prepared upon: (A) the profits or losses of the other body corporate for
each of the five financial years immediately preceding the issue of the
prospectus; and (B) the assets and liabilities of the other body corporate
as on the last date to which its accounts were made up.
Further the aforesaid report said report shall: (i) indicate how the
profits or losses of the other body corporate dealt with by the report
would, in respect of the shares to be acquired, have concerned members
of the issuer and what allowance would have fallen to be made, in
relation to assets and liabilities so dealt with for holders of other shares,
if the issuer had at all material times held the shares to be acquired; and
(ii) where the other body corporate has subsidiaries, deal with the
profits or losses and the assets and liabilities of the body corporate and
its subsidiaries in the manner similar to that of rules pursuant to 26(1)
(b)(ii). (3) The matters relating to terms and conditions of the term
loans including re-scheduling, prepayment, penalty, default. (4) The
aggregate number of securities of the issuer company and its subsidiary
companies purchased or sold by the promoter group and by the
directors of the company which is a promoter of the issuer company and
by the directors of the issuer company and their relatives within six
months immediately preceding the date of filing the prospectus with the
Registrar of Companies shall be disclosed. The term promoter has been
defined in section 2(69) so as to mean a person (a) who has been
named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or (b) who has control over the
affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or (c) in accordance with whose advice, directions
or instructions the Board of Directors of the company is accustomed to
act: Nothing in sub-clause (c) shall apply to a person who is acting
merely in a professional capacity. (5) The matters relating to (A)
Material contracts; (B) Other material contracts; (C) Time and place at
which the contracts together with documents will be available for
inspection from the date of prospectus until the date of closing of

subscription list. (6) The related party transactions entered during the
last five financial years immediately preceding the issue of prospectus
as under - (a) all transactions with related parties with respect to giving
of loans or, guarantees, providing securities in connection with loans
made, or investments made;

(b) all other transactions which are material to the issuer company or
the related party, or any transactions that are unusual in their nature or
conditions, involving goods, services, or tangible or intangible assets, to
which the issuer company or any of its parent companies was a party.
The disclosures for related party transactions for the period prior to
notification of these rules shall be to the extent of disclosure
requirements as per the Companies Act, 1956 and the relevant
accounting standards prevailing at the said time. (7) The summary of
reservations or qualifications or adverse remarks of auditors in the last
five financial years immediately preceding the year of issue of
prospectus and of their impact on the financial statements and financial
position of the company and the corrective steps taken and proposed to
be taken by the company for each of the said reservations or
qualifications or adverse remarks. (8) The details of any inquiry,
inspections or investigations initiated or conducted under the
Companies Act or any previous companies law in the last five years
immediately preceding the year of issue of prospectus in the case of
company and all of its subsidiaries; and if there were any prosecutions
filed (whether pending or not); fines imposed or compounding of
offences done in the last five years immediately preceding the year of
the prospectus for the company and all of its subsidiaries. (9) The
details of acts of material frauds committed against the company in the
last five years, if any, and if so, the action taken by the company. (10) A
fact sheet shall be included at the beginning of the prospectus which
shall contain - (a) the type of offer document (Red Herring Prospectus
or Shelf Prospectus or "Prospectus"). (b) the name of the issuer
company, date and place of its incorporation, its logo, address of its
registered office, its telephone number, fax number, details of contact
person, website address, e-mail address; (c) the names of the
promoters of the issuer company; (d) the nature, number, price and
amount of securities offered and issue size, as may be applicable;
(e) the aggregate amount proposed to be raised through all the stages
of offers of specified securities made through the shelf prospectus; (f)
the name, logo and address of the registrar to the issue, along with its
telephone number, fax number, website address and e-mail address; (g)
the issue schedule - (i) date of opening of the issue; (ii) date of closing
of the issue; (iii) date of earliest closing of the issue, if any. (h) the

credit rating, if applicable; (i) all the grades obtained for the initial
public offer; (j) the name(s) of the recognised stock exchanges where
the securities are proposed to be listed; (k) the details about eligible
investors; (l) coupon rate, coupon payment frequency, redemption date,
redemption amount and details of debenture trustee in case of debt
securities. In case of companies which have not completed five years, it
shall be sufficient compliance for a company which has not completed
five years, if such company provides such particulars or information for
all the previous years since its incorporation. Sub-section(2) of Section
26 provides that nothing aforesaid (i.e. provisions of section 26(1))
shall apply under following circumstances: (a) Where a prospectus or
form of application relating to shares in or debentures of the company is
issued to existing members or debenture-holders of a company,
whether an applicant has a right to renounce the shares or not under
section 62 sub-section (1) clause (a) sub-clause (ii) in favour of any
other person; or; (b) Where the issue of a prospectus or form of
application relating to shares or debentures which are, or are to be, in
all respects uniform with shares or debentures previously issued and for
the time being dealt in or quoted on a recognised stock exchange.
Statement by Experts A prospectus issued by public company shall not
include a statement purporting to be made by an expert, unless the
expert is a person who is not and has not been, engaged or interested in
the formation or promotion or management, of the company. Such
statement shall be included only when such expert has given his written
consent to the issue of the prospectus and has not withdrawn such
consent before the delivery of a copy of the prospectus to the Registrar
for registration. A statement to that effect shall be included in the
prospectus. Dating & Signing and Registration of Prospectus According
to Section 26(1) of the Act, every prospectus issued by or on behalf of a
public company either with reference to its formation or subsequently,
or by or on behalf of any person who is or has been engaged or
interested in the formation of a public company, shall be dated and
signed. The date indicated in the prospectus shall be deemed to be the
date of its publication. The prospectus shall be signed by every person
who is named therein as a director or proposed director of the Company
or by his duly authorised attorney. Prospectus shall be issued by or on
behalf of a company or in relation to an intended company only when it
has been delivered to the Registrar for Registration a copy of signed
prospectus on or before the date of its publication. The Registrar shall
not register a prospectus unless the requirements with respect to its
registration are complied with and the prospectus is accompanied by the
consent in writing of all the persons named in the prospectus.
Prospectus is to be issued within ninety days from the date of delivery
of prospectus to the Registrar. No prospectus shall be valid if it is issued

more than ninety days after the date on which a copy thereof is
delivered to the Registrar.

5 SHELF PROSPECTUS
Shelf Prospectus means a prospectus in respect of which the
securities or class of securities included therein are issued for
subscription in one or more issues over a certain period without
the issue of a further prospectus. In simple terms Shelf
Prospectus is a single prospectus for multiple public. Issuer is
permitted to offer and sell securities to the public without a
separate prospectus for each act of offering for a certain period.
Under the Act any class or classes of companies, as the Securities
and Exchange Board (SEBI) may provide by regulations in this
behalf, may file a shelf prospectus with the Registrar. Such
prospectus is to be submitted at the stage of the first offer of
securities which shall indicate a period not exceeding one year as
the period of validity of such prospectus. The validity period shall
commence from the date of opening of the first offer of securities
under that prospectus, and in respect of a second or subsequent
offer of such securities issued during the period of validity of that
prospectus, no further prospectus is required. An information
memorandum is required to be filed by a company filing a shelf
prospectus which shall contain all material facts relating to new
charges created, changes in the financial position of the
company as have occurred between the first offer of securities or
the previous offer of securities and the succeeding offer of
securities, and such other changes as may be prescribed, with
the Registrar within the prescribed time, prior to the issue of a
second or subsequent offer of securities under the shelf
prospectus. According to the rules the information memorandum
shall be prepared in Form PAS-2 and filed with the Registrar along
with the fee as provided in the Companies (Registration Offices
and Fees) Rules, 2014 within one month prior to the issue of a
second or subsequent offer of securities under the shelf
prospectus. The section also provides a benefitting provision for
the investors, the proviso provides that where a company or any
other person has received applications for the allotment of
securities along with advance payments of subscription before the
making of any such change, the company or other person shall
intimate the changes to such applicants and if they express a
desire to withdraw their application, the company, or other person

shall refund all the monies received as subscription within fifteen

days thereof. Form PAS-2 significantly provides for following
information to be disclosed: 1. Change in financial position of the
company 2. Changes in the Share Capital, i.e. Capitalization
Statement 3. Changes in accounting policies 4. Change in the risk
factors as stated in the Shelf Prospectus and in the information
memorandum filed with respect to previous offer) 5. Economic
changes that may affect income from continuing operations 6. Any
significant changes in the activities of the company, which may
have a material effect on the profit/loss of the company, including
the loss of agencies or markets and similar factors 7. Changes in
the total turnover of each major industry segment in which the
issuer operates 8. Any significant legal proceedings initiated by
the company or against the company or its directors, the outcome
of which could have an adverse impact on the company 9. Any
significant claim made by any person or any authority against the
company 10. Any significant change in the business environment
of the company whether technological, financial, market related,
government policy or otherwise, adversely affecting, in present or
in future, the business of the company 11. Any significant change
in the management or ownership of the company 12. Any other
change which may reasonably influence the investment decision
of an investor 13. Gist of details of Proposed objects with
reference to the current offering including project plan, financial
details, time period of meeting the objects and other relevant
factors. 14. Date wise details of charges created on the assets /
properties of the company since first offer or previous offer of
securitiesa. Date of creation of charge b. Purpose for which charge
has been created c. Amount for which charge has been created d.
Period of charge e. Details of assets / property on which charge
has been created f. Name of the charge holder g. Brief terms and
conditions of the charge. Where an information memorandum is
filed, every time an offer of securities is made such memorandum
together with the shelf prospectus shall be deemed to be a
prospectus.
6 RED HERRING PROSPECTUS
Red herring Prospectus means a prospectus which does not
include complete particulars of the quantum or price of the
securities included therein. In simple terms a red herring
prospectus contains most of the information pertaining to the

companys operations and prospects, but does not include key

details of the issue such as its price and the number of shares
offered. According to section 32 a company proposing to make an
offer of securities may issue a red herring prospectus prior to the
issue of a prospectus. Such company proposing to issue a red
herring prospectus shall file it with the Registrar at least three
days prior to the opening of the subscription list and the offer. A
red herring prospectus shall carry the same obligations as are
applicable to a prospectus and any variation between the red
herring prospectus and a prospectus shall be highlighted as
variations in the prospectus. Upon the closing of the offer of
securities under this section, the prospectus stating therein the
total capital raised, whether by way of debt or share capital, and
the closing price of the securities and any other details as are not
included in the red herring prospectus shall be filed with the
Registrar and the Securities and Exchange Board.
7 ABRIDGED PROSPECTUS
According to section 2(1) of the Act abridged prospectus means
a memorandum containing such salient features of a prospectus
as may be specified by the Securities and Exchange Board by
making regulations in this behalf.
Section 33 of the Act provides that no form of application for the
purchase of any of the securities of a company shall be issued
unless such form is accompanied by an abridged prospectus. A
copy of the prospectus shall, on a request being made by any
person before the closing of the subscription list and the offer, be
furnished to him. Nothing aforesaid shall apply if it is shown that
the form of application was issued (a) in connection with a bona
fide invitation to a person to enter into an underwriting
agreement with respect to such securities; or (b) in relation to
securities which were not offered to the public. The penal
provisions provide that a company which makes any default in
complying with the provisions shall be liable to a penalty of fifty
thousand rupees for each default.