Chapter 6 Flashcards
Definition of Prospectus
Prospectus: Any document offering securities to the public or inviting offers for subscription/purchase of securities. Includes: Notices, circulars, advertisements, offers for sale, etc. Excludes: Deposits by banks and non-banking finance companies (NBFCs).
Purpose of Prospectus
For Companies: To issue securities to the public. For Investors: Provides relevant information for purchasing or subscribing to company securities.
Timing of Prospectus
Issuance: Can be issued at any time in the company’s life. Before Commencement: Shares can be issued before starting business. Future Issuance: Companies can decide to issue shares later. Note: The existence of a prospectus ends when its purpose is fulfilled (unlike MOA or AOA, which are permanent).
Shelf-Prospectus
Definition: A single document for making multiple offerings over a period. Supplement: Contains updated disclosures for subsequent offerings from the shelf-prospectus.
Filing of Prospectus with Registrar
Filing Requirement: A signed copy must be filed with the registrar on or before the date of publication. Penalty: Contravention results in a penalty not exceeding level 2.
Approval of Prospectus by SECP
Approval: Required before issuance, publication, or circulation. Timeframe: Submit prospectus at least 21 days before the proposed publication date. Validity: Approved prospectus is valid for 60 days (extendable by SECP).
Exceptions to SECP Approval
Approval not required if: Securities issued by the State Bank of Pakistan. Private Offer: Securities issued privately. Subsidiary Shares: Offered to members of a listed holding company. Bonus Shares: Issued as a bonus to existing shareholders or members.
Publication of Prospectus
Language: Published in one Urdu and one English newspaper. Timing: Published at least 7 to 30 days before public subscription. Availability: Copies available at registered offices, securities exchanges, banks, and on the issuer’s website.
Expert’s Role in Prospectus
Expert: Must be independent, not involved in the management or promotion of the company. Consent: Written consent is required for the inclusion of expert statements, and a declaration must be made in the prospectus.
Criminal Liability for Defective Prospectus
Offense: Issuing misleading, incorrect, or deceptive statements, or omitting required information. Consequences: Compensation must be paid to those who suffer losses due to false or misleading information.
Conditions for Commencement of Business
For companies other than private companies: Share Capital: Minimum subscription shares must be allotted in cash. Director Contributions: Each director must pay the full amount for shares they have taken. Verification: A verified declaration must be filed with the registrar, and a certificate of commencement is issued.
Minimum Subscription
Definition: The amount fixed in the MOA/AOA for directors to proceed with share allotment. No Amount Fixed: The entire share capital, excluding non-cash issued shares, is considered the minimum subscription.
Prospectus vs. SILOP (Statement in Lieu of Prospectus)
Prospectus: Issued when the company invites the general public or is listed. SILOP: Filed when the company is not inviting the public to subscribe or if shares are issued but the company is not listed.
Risk Factors in Prospectus
Requirement: Authorities often require companies to highlight risk factors in a separate paragraph. Advice: Investors are encouraged to read this section carefully before making investment decisions.
