Ch6 Prospectus & Commencement of Business - Sheet1 Flashcards
Definition: Prospectus [Section 2(xli) – Securities Act, 2015]
“prospectus” means any document described or issued as a prospectus and includes any document, notice, circular, material, advertisement, offer for sale document, publication or other invitation offering to the public (or any section of the public) or inviting offers from the public for the subscription or purchase of any securities of a company, body corporate or entity, other than deposits invited by a bank and certificate of investments and certificate of deposits issued by non-banking finance companies.
Purpose of prospectus
If a company wants to issue securities to general public, it has to issue a prospectus. This prospectus provides the public with relevant information to decide whether they should invest in the company or not.
Timing of prospectus
A company may issue a prospectus at any point of time in its life and a company may issue shares to public in the future at any time(s). A company may issue shares to public before commencement of business. The existence of prospectus ends after the purpose is fulfilled (it is not like memorandum or articles that are permanent documents).
Shelf prospectus
A shelf-prospectus is a single offering document allowing companies to make multiple offerings as disclosed in the offering document within a prescribed time and subject to prescribed conditions.
Supplement to shelf prospectus
A supplement to the prospectus invites the general public for subscription of the securities earlier offered to the public through shelf-prospectus. The supplement to the prospectus for each offering contains updated disclosures.
Filing with registrar before issue [Section 57 – Companies Act, 2017]
No prospectus shall be issued by or on behalf of a company unless on or before the date of its publication, a copy thereof signed by every person who is named therein as a director or proposed director of the company has been filed with the registrar.
In case of any contravention, the company and every person who is a party to the issue, publication or circulation of the prospectus shall be liable to a penalty not exceeding of level 2 on the standard scale.
Risk Factors
It is customary for the authorities to require the company to arrange and write the risk factors separately in prospectus. All the factors that could be risky for investment in the company are written and readers of the prospectus are specifically advised to read the same before making any investment decision.
Role of authorities
The prospectus must be approved by SECP who review it for compliance strictly. It does not however mean that the authorities act just to discourage the company and its promoter but it is the duty of authorities to make sure that accurate information is provided to the prospective shareholders or members.
Offer of securities [Section 87 & 89 – Securities Act, 2015]
Approval from Commission
No person shall make a public offer of securities unless the issuer (i.e. a company) or offeror of the securities has submitted for approval to the Commission, and the Commission has approved prospectus.
Content of prospectus
The Commission may approve a prospectus if it contains such information and reports as may be prescribed by the regulations made by the Commission. The Commission has issued the Public Offering Regulations, 2017 which also include these contents.
Validity of approval
A prospectus approved by the Commission shall be valid for a period of 60 days from the date of such approval. The shelf prospectus shall be valid for such longer period as approved by Commission. The time period may be extended by the Commission for reasons to be recorded in writing.
No liability of SECP
The Commission shall not be liable to any action in damages suffered as a result of any prospectus approved by the Commission.
Offence
A person who, in connection with a public offer of securities, makes a false or fictitious application, commits an offence.
Exception to Approval requirement
The above requirement of approval does not apply:
to securities offered by the State Bank of Pakistan.
where the securities are offered in connection with a private offering or private placement.
issue of shares of a subsidiary to the members of a listed holding company by way of specie dividend or any other distribution in the prescribed manner.
where the securities are offered by the issuer to members or employees of the issuer or families of such members and employees.
the securities are shares and are offered as bonus shares to any or all of the members of the issuer.
Approval, issue, circulation and publication [Section 88 – Securities Act, 2015]
Approval from Commission
No person shall issue, circulate and publish prospectus including a shelf-prospectus or supplement to the prospectus until it has been approved by the Commission.
Filing for approval
The issuer or the offer or shall submit a copy to the Commission for approval not less than 21 days before the proposed date of publication of the prospectus.
Publication in newspapers
Where a public offer is made in Pakistan the issuer or offeror shall publish the prospectus in full text or in such abridged form as may be prescribed, at least in one Urdu and one English daily newspaper.
The prospectus shall not be published in the newspapers less than 7 days or more than 30 days before the commencement of the public subscription.
Availability of copies
The issuer or the offerer shall make available sufficient number of copies of the prospectus approved by the Commission, free of charge, from the date of its publication in the newspapers till the closing of the subscription at:
the registered office of the issuer,
all the securities exchanges of the country,
all the bankers to the issue,
the concerned share registrar,
the concerned ballotter; and
the concerned credit rating agency, if any.
Upload on website
The prospectus in full text and the shares subscription form shall be uploaded on the website of the issuer and shall remain there from the date of its publication in the newspapers till the closing of the subscription.
Restriction
No person shall issue, circulate, publish, telecast or broadcast without the prior written approval of the Commission, an advertisement, other than a prospectus, announcing a public offer of securities for which a prospectus is required unless a prospectus has been published and the advertisement gives an address in Pakistan from which it can be obtained.
Terms not to be varied
The issuer or offeror, as the case may be, shall not, at any time, vary the terms of the clauses stipulated in its prospectus except subject to the approval of the Commission.
Expert’s opinion
Definition: Expert [Section 2(xxii) – Securities Act, 2015]
“expert” includes banker, securities advisor, engineer, valuer, accountant, lawyer and any other person whose profession gives authority to a statement made by him.
Expert to be independent [Section 90 – Securities Act, 2015]
A prospectus shall not contain 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.
Consent of Expert [Section 91 – Securities Act, 2015]
A prospectus that contains a statement purporting to be made by an expert or to be based on a statement made by an expert shall not be issued, circulated or published unless:
The expert has given, his written consent to the issue of the prospectus with the statement in the form and context in which it is included; and
There appears in the prospectus a statement that the expert has given and has not withdrawn his consent.
Criminal liability and compensation
Criminal liability for defective prospectus [Section 92 – Securities Act, 2015]
A person commits an offence, who:
makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
omits information or a statement from a prospectus that is required to be included in the prospectus.
Compensation for false or misleading prospectus [Section 93 – Securities Act, 2015]
Every offeror, issuer, director of an offeror or issuer or any person who has signed the prospectus shall be liable to pay compensation to any person who acquires any of the securities, in reliance upon the prospectus, to which the prospectus relates and suffers loss in respect of them as a result of any incorrect, untrue or misleading statement in the prospectus or the omission from it of any matter required to be included.
Commencement of business [Section 19]
Minimum Subscription
Minimum subscription means the amount, if any, fixed by the memorandum or articles upon which the directors may proceed to allotment. If no amount is fixed, the whole amount of share capital (other than that to be issued not for cash) is minimum subscription.
Conditions for commencement of business
A public company shall not start its operations or exercise any borrowing powers unless:
a) shares for cash have been allotted to an amount not less than the minimum subscription;
b) every director of the company has paid to the company full amount on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash;
c) no money is or may become liable to be repaid to applicants for any shares which have been offered for public subscription;
d) there has been filed with the registrar a duly verified declaration by the chief executive or one of the directors and the secretary that the aforesaid conditions have been complied with; and
e) in the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been filed with the registrar a statement in lieu of prospectus.
Exception
The above requirement does not apply to:
to a company converted from private to a public;
to a company limited by guarantee and not having a share capital.
Acceptance and registration of documents by registrar
The registrar shall, after making such enquiries as he may deem fit to satisfy himself, accept and register all the relevant documents. The acceptance and registration of documents shall be a conclusive evidence that the company is entitled to start its operations and exercise any borrowing powers.
Consequences of non-compliance [Section 20]
Penalty
If any company starts its business operations or exercises borrowing powers in contravention of above provisions, every officer or other person who is responsible for contravention shall without prejudice to other liabilities be liable to a penalty not exceeding level 2 on the standard scale.
Status of contracts by company
Any contract made by a company before the date at which it is entitled to commence business shall be provisional only, and shall not be binding on the company until that date, and on that date it shall become binding.
Prospectus or statement in lieu of prospectus
Circumstances: Relevant document to be issued or filed
Inviting general public, or when company is listed on stock exchange: Prospectus
Not inviting the public to subscribe: Statement in lieu of prospectus
Issued a prospectus but could not obtain listing on stock exchange: Repayment of all money on the basis of prospectus AND filing Statement in lieu of prospectus
