Oct 18, 2017
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Prospectus under The Companies Act, 2013

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This article explains the meaning and definition of prospectus. It also gives information regarding the matters which thus should stated in the prospectus.

Meaning of Prospectus

“prospectus” means any document described or issued as a prospectus and includes a red herring prospectus or shelf prospectus or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

A prospectus may issued by or behalf of a public company. It can issue either with reference to its formation or subsequently, or on behalf of any person who has engaged or interested in the formation of a public company.

Information Stated in the Prospectus

  1. The Prospectus issued should contain-

  • 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;

  • The dates relating to opening and closing of the issue;

  • A declaration which shall be made by the Board or the Committee authorized by the Board 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 Securities and Exchange Board 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;

  • Statement given by Board that monies received out of issue shall transferred to separate bank account maintained with Scheduled Bank;

  • The details of all utilized and unutilized 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;

  • The names, addresses, telephone numbers, fax numbers and e-mail addresses of the underwriters and the amount underwritten by them;

  • The consent of trustees, solicitors or advocates, merchant bankers to the issue, registrar to the issue, lenders and experts;

    2. The capital structure of the company should presented in the following manner, namely: –

(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:

Provided that in the case of an initial public offer of an existing company, the details regarding individual allotment shall given from the date of incorporation of the issuer and in the case of a listed issuer company, the details shall thus given for five years immediately preceding the date of filing of the prospectus:

Provided that 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.

3. The prospectus issued should contain the following particulars, namely: –

  • the objects of the issue;
  • the purpose for which there is a requirement of funds
  • the funding plan (means of finance);
  • the summary of the project appraisal report (if any);
  • the schedule of implementation of the project;
  • the interim use of funds, if any

4.The prospectus issued should 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 thus disclosed;

(ii) Details of pending litigation involving issuer, promoter, director, subsidiaries, group companies or any person, whose outcome could have material adverse effect on position of 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.

5. The details of directors including their appointment and remuneration, and particulars of the nature and extent of their interests in the company shall 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 issuer company in two years preceding date of Prospectus or any immoveable property proposed to acquire 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.

6. The sources of promoters’ contribution, if any, shall 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 made fully paid up, percentage of the total pre and post issue capital;

(ii) Proceeds out of sale of shares of company and shares of its subsidiary companies previously held by each of 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.

Reports Set Out in the Prospectus.

The following reports should set out with the prospectus, namely:-

(1) The reports by the auditors with respect to profits and losses and assets and liabilities.

Explanation.- For the purposes of this sub-rule, the report 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:

Provided that 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.

(2) The 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 issue of the prospectus shall-

(a) if the company has no subsidiaries, deal 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 separately with issuer company’s profits/losses as provided in clause (a) and in addition, deal either –

(i) as a whole with combined profits or losses of its subsidiaries, so far as concern members of 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 profits/losses of company, as concern members of issuer company, with combined profits/losses of its subsidiaries.

(3) The reports made by the auditors in respect of the business of the company shall stated in the prospectus.

Declaration of Compliance

Every prospectus shall 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 there under.

Delivery of Prospectus with Registrar

A copy of prospectus should delivered to the Registrar for registration signed by every person who thus named as a director or proposed director of the company or by his duly authorised attorney on or before the date of its publication and only then it shall issued by or on behalf of a company or in relation to an intended company.

Statement of an Expert

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 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 should included in the prospectus. Prospectus shall not valid if issued more than ninety days after date on which a copy thereof delivered to Registrar.

Penalty for non- compliance

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.

Variation in Terms of Contract or Objects in Prospectus

(1) A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus thus issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution:

Provided that the details, as may prescribed, of the notice in respect of such resolution to shareholders, shall also published in the newspapers (one in English and one in vernacular language) in the city where the registered office of the company thus situated indicating clearly the justification for such variation:

Provided further that such company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company.

(2) The dissenting shareholders being those shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or controlling shareholders at such exit price, and in such manner and conditions as may be specified by the Securities and Exchange Board by making regulations in this behalf.

 

 

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Article Categories:
The Companies Act, 2013

Avani is a LL.B. student of New Law College. Classical use of language and adeptness with the written word make her treasure useful legal information. In her spare time, she writes prose and pursue an active interest in creative writing.

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