prospectus and shares

8/6/2019 Prospectus and Shares

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Prospectusy Document which is used to raise the capital from public

y

Prospectus must be in writing

y A private company is prohibited from making an invitationto public and hence it need not issue a prospectus.

y Prospectus is the basis on which the prospective investorsform their opinion and take decisions as to the worth ofthe company


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Features of Prospectusy Definition:Any document described or issued as a prospectus and

includes any notice circular, advt., or other document inviting depositfrom the public for subscription or purchase of any shares ordebentures of a body corporate.

y Prospectus must be invitation to publicy Prospectus must be in writingy It is an offer to publicy Public could be any section of public such as elected members

,debenture holders or as clients of the person issuing the prospectusy Prospectus must be dated and date is taken as the date of publication

of prospectusy Signing of Prospectus must be signed by the proposed directors or by

their agents. In the case of existing companies, it should be signed byall the directors


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Registration of prospectusyA prospectus can be issued by a company only

when the copy thereof has been delivered to theRegistrar for registration

y The registration must be made on or before thedate of publication thereof

y The copy must be signed by very person who isnamed there in as the director of the company or

by his agent who is duly authorised.y Every prospectus must state on the face of that a

copy has been delivered to the Registrar forregistration


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Registrationy The prospectus must be issued within 90 days of the

date on which a copy is delivered for registration

y If prospectus is not registered, the company and everyperson, who is knowingly a party to the issue of theprospectus, shall be punishable with fine which mayextend to Rs 50,000


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Shelf prospectusy Prospectus issued by any financial institution or bank for

one or more issues of the securities or class of securitiesspecified in that prospectus

y A company filing a shelf prospectus with the registrar shallnot required to file prospectus afresh at every stage of offerof securities by it within a period of validity of prospectus

y Any public sector company or schedule bank whose mainobject is financing shall file self prospectus.

yFinancing means making loans to or subscribing in thecapital of a private industrial enterprise engaged ininfrastructural financing or such other company as thecentral government may notify in this behalf.


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Shelf prospectusyA company issuing shelf prospectus shall not require

to file prospectus afresh at each stage of offer ofsecurities.

yAn information memorandum shall be issued to thepublic along with shelf prospects filed at the stage ofthe first offer of securities and prospectus will be valid

for a year.


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Information memorandumy Process undertaken prior to the filing of

prospectus

y Demand for securities proposed to be issued by acompany is elicited, price and the terms of issue isassessed, by means of notice, circular, ad ordocument

yA public limited company can before issue ofsecurities circulate information memorandum tothe public prior to filing of a prospectus.


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Red Herring Prospectusy Does not have details of either price or number of

shares being offered or amount of issue

y Price is not disclosed, the number of shares andupper and lower price bands are disclosed

y Issue price is stated and the number of shares aredetermined later

y In case of book built issues it is a process of pricediscovery and the pricing cannot be discovereduntil the bidding process is completed.


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Red Herring ProspectusyAn 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 ofthe issue

y In the case of book-built issues, on the completion ofbidding process, the details of final price are included

in the offer document


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Contents of Prospectusy Matters to be stated in Prospectus

y Matters specified in Part I of Schedule II

y Reports specified in Part II of Schedule IIy Part I of Schedule II

y General information about the Company

y Capital Structure

y Terms of the present issue

y Particulars of the issue


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Contents of Prospectusy Company management and project

y Particulars of companies under the same management

y Outstanding litigation

y Management perception of risk factors

y Part II of Schedule II

y General Information

y Financial information

y Statutory and other information


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Liability for misstatementsy Civil liability

y Against the company

y Against the directors, promoters and expertsy Criminal Liability


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Liability of misstatements in

Prospectusy Civil Liability

y Criminal liability


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Civil Liability1. Against the company

Rescission of contract

Claim for damages


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Rescission of contracty The contract must be a material mis representation

y The statement must have induced the share holders to takeshare

y The statement must be untrue: Giving false impression

y The deceived shareholder is an allottee and he must haverelied on the statements in the prospectus

y The omission of material fact must be misleading before

rescission is grantedy The proceeding of recission must be stated as soon as the

allottee comes to know of a misleading staement.


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Damages for deceityAny person induced by a fradulent statement in a

prospectus to take shares is entitled to sue the

company for damages.

y He must prove the same matters in claimingdamages for deceit as in claiming for rescission

y He cannot both retain shares and get damagesagainst the company


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Remedies against the directors,

promoters and expertsy The person who are liable to pay compensation for

any loss or damage to subscribers for any shares ordebentures on the faith of a prospectus containing

untrue statements are :DirectorsPersons who have authorised themselves to benamed as directors

PromotersPersons who have authorised the issue ofprospectus


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The liabilities of directors etc

arey Liability for damages for mis statement

y Liability for damages for non compliance

y Liability under the general law


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Criminal LiabilityyA prsopectus found containing an untrue

statement is punishable with imprisonment upto

2 years

y Or a fine upto Rs. 50,000

y He will not be liable if he can prove ; thestatement was immaterial,he had reasonablereason to believe the statement was true.


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COMPANY LAW

SHRUTI MINOCHA

Share Capital


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SHARES

Share capital

The capital of the company is divided into certainindivisible units of a fixed amount, these units areshare

Share is the interest of a shareholder in a company

share certificate ,

It is movable property, transferable in the mannerprovided by the articles of the company


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STOCK

Stock is the aggregate of fully paid up shares.

A co.ltd by shares can convert a fully paid up shares into the

stock by passing a ordinary resolution.

Once converted ,notice of the same is to be given to registrar

within 30 days.

Registrar will than show the amount of stock held by eachmember instead of amount of shares.


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DIFFERENCE BETWEEN STOCK AND

SHARES

y A share has a nominal value (per unit value), whereas stock has

no value

y Stock is always fully paid shares, shares may not be so

y Stock is transferable in small fractions while shares can be

transferred in round numbers

y All shares have of equal denomination, stock may be of unequal

amounts

y The fractions or parts of stock do not bear distinctive numbers

while shares always bear distinctive numbers

y Shares can be issued directly issued to public but stock cannot be

directly issued to public. Only fully paid shares can be converted

to stock


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TYPES OF SHARES

Two types of shares can be issued by a company

y Preference shares

y Equity shares

Preference share are shares which has 2

characteristics

y Preferential rights to dividend during lifetime of the

company

y Preferential rights to return of capital when company

goes into liquidation (closure)

Equity shares means shares which are not

preference shares

Sweat equity shares means equity shares issued at

a discount or for consideration other than cash,


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TYPES OF PREFERENCE SHARES

1) Cumulative preference shares type of shares on which dividendgoes on accumulating till it is fully paid off. The co. is bound topay the dividend only if it has sufficient profit available fordistribution. If co. goes into liquidation, the arrear of dividendare to be paid only if the article contain express provision in this

regard.2) Non Cumulative preference shares - type of shares on which

dividend does not go on accumulating. If there are no profits orinadequate profits in any year, these shares gets no dividend orget a partial dividend

3) Participating preference shares not only entitled to fixed rate ofdividend but also to share in the surplus profits after thedividends are paid to equity shareholders

4) Non- Participating preference shares entitled only to fixed rateof dividend.

5) Convertible preference shares these shares entitles the holders

to convert them into equity shares within a certain period


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TYPES OF PREFERENCE SHARES

6) Non- Convertible preference shares these shares

does not entitles the holders to convert them into

equity shares

7) Redeemable preference shares Preference shares

which can be redeemed


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APPLICATION ANDALLOTMENT OF

SHARES

General provision:

Proper authority:An allotment must be

made by a resolution of the BOD of the co. This

duty cannot be delegated by the director unlessthere is a provision in the article for the same.

Reasonable Time: allotment must be made

within the reasonable time otherwise applicant

is not bound to accept the same.


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OF SHARES

Communication: the allotment must be communicated to

the person making the application so that it is legally

complete,.

Absolute and Unconditional: if an application is conditional

and condition is not fulfilled ,the applicant is not bound to

take the shares.

Revocation: An offer to take shares may be withdrawn any

time before communication of its acceptance is complete

against the applicant.


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SHARES

Special provisions:

When no public offer is made: It need not to

issue the prospectus ,only a statement in lieu of

prospectus has to be issued that is to provideinformation contained in schedule III of the

act.It must be signed by every person who is

named therein as a director or proposed director

of the co. or his agent authorized in writing.


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SHARES

When public offer is made;

Registration of prospectus

Making initial public offer of any security for

sum of rs. 10 crore or more ,shall issue the sameonly in dematerialized form complying with

provisions of depository act ,1996.


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APPLICATION ANDALLOTMENT OF SHARES

Minimum subscription No allotment shall be made of any

share capital offered to the public for subscription unless -

a) the amount stated in the prospectus as the minimum amount

has been subscribed

b) the sum payable on application for such amount has been

paid to and received by the company

A company must receive a minimum of 90% of subscriptionagainst the entire issue before allotment of shares or

debentures. If the minimum subscription is not received, the

entire amount will have to refunded to the applicants to

shares.


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APPLICATION ANDALLOTMENT OF SHARES

Application money amount payable on application should

not be less than 5% of the nominal amount of the shares

The capital issued should be fully paid up within 12 months

from the date of allotment of shares

All moneys received from applicants for shares shall be

deposited and kept deposited in a scheduled bank

a) until the certificate of commencement of business is

obtainedb) where such certificate has been received, until the

minimum subscription has been received


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TRANSFER OF SHARES

Section 108 to 112 deals with transfer of shares,provisions are given below

Transfer not be registered except on production oftransfer deed

Every transfer deed shall be in the prescribed form Period of delivery of transfer deed before the date on

which the register of members is closed

Transfer by legal representative of deceased memberis valid

Application for registration of shares of a companymay be made either by the transferor or by thetransferee

Companies should give reasons before they refusetransfer of shares


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FORGED SHARES / BLANKTRANSFER

An instrument of shares on which the signature of the

transferor is forged is called a forged instrument and

any transfer happens on the forged instrument is

forged transfer

A forged transfer is a nullity. It does not pass anylegal title to the transferee

Blank transfer is a transfer of shares which is

executed without the name of the transferee filled in

the transfer form, which a transferor hands over to a

purchaser. The transferor also hands over the share

certificate to the buyer along with the blank transfer

form. The transferor fills in his name and signs it.

prospectus and shares

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