Chapter 6: Prospectus and Commencement of Business Flashcards
Prospectus definition [3]
i) Any document described or issued as a prospectus
ii) includes
* any document,
* notice,
* circular,
* material,
* advertisement,
* offer for sale document,
* publication or
* other invitation
iii) offering to the public (or any section) or inviting offers from public
iv) for the subscription or purchase of any securities of a company, body corporate or entity
v) other than
- deposits invited by a bank
- certificate of investments
- certificate of deposits issued by non-banking finance companies
Purpose of the prospectus [2]
- If company wants to issue securities to large number of persons (public)
- If general public wants to subscribe or purchase securities of any company, it can help them by providing relevant information.
Timing of prospectus [3]
at any point in time of company’s life:
- can issue shares before commencement of business.
- can decide to issue shares in the future
Existence of Prospectus ends after the purpose is fulfilled
Shelf-Prospectus definition [3]
- 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 Prospectus [2]
- A supplement to prospectus invites general public for subscription of the securities earlier offered to the public through shelf-prospectus.
- The supplement to prospectus for each offering contains updated disclosures.
Filing of prospectus with registrar before issue [2]
- On or before the date of publication, a copy signed by every director/proposed director, should be filed with the registrar.
- In case of any contravention, company and every person who is party to issue, publication or circulation of prospectus shall be liable to a penalty not exceeding level 2
Note: Normally authorities require the company to arrange and write risk factors separately (in a single para). Readers of prospectus are specifically advised to read at least that para before making any investment decision.
Approval of prospectus (process) [9]
- Prospectus must be approved by SECP before publication
- Issuer shall submit a copy to SECP at least 21D before proposed date of publication.
- SECP shall approve it after confirming it contains prescribed information (Public offering Regulation 2017)
- Such approval would be valid for 60 days (extended by SECP for reasons in writing)
- SECP could impose further restrictions/conditions
- Without written SECP approval, no person should issue, circulate, publish, telecast, broadcast, an advertisement(not prospectus) announcing public offer of securities.
- Advertisement (giving address of obtaining prospectus) can be done after publishing of prospectus
- Issuer/offeror cant vary the terms of clauses given in its prospectus without approval of SECP
- SECP shall not be liable to any action in damages suffered due to any prospectus approved by SECP
Exceptions where approval of prospectus by SECP is not required [5]
- Securities by State Bank
- Securities are in connection with a private offer
- Issue of shares of subsidiary to members (as dividend)
- securities are offered to members/employees or their family members
- securities are shares & offered as bonus shares to any or all of members of issuer.
Publication of Prospectus in newspaper [2]
- published at least in one Urdu and one English daily newspaper
- published in newspapers at least 7D and at most 30D before the commencement of public subscription
Expert definition
banker, securities advisor, engineer, valuer, accountant, lawyer and any other person whose profession gives authority to a statement made by him..
Expert should be a person who is not, and has not been, engaged or interested information or promotion or in management of company.
Expert’s consent [2]
statement by expert shall** not be issued, circulated** or published unless:
* expert has given a written notice to issue prospect with with his included statement in form and context
* there is a statement in prospectus that expert has given his consent
Criminal liability for defective prospectus [2]
Person commits an offence who:
* Makes a misleading, incorrect, untrue, deceptive statement in a prospectus
* Omits information or a statement that a regulation, rule, or Securities Act requires
Consequence of loss on misleading prospectus
issuer shall be liable to pay compensation to acquirer of securities(who relied on misleading prospectus) and suffers loss due to misleading statement
Exception for condition for commencement of business [2]
- Private company (also, public converted to private) and
- a guarantee limited company
not having share capital can commence their business and exercise all of the powers regarding borrowings after incorporation
Other companies shall not commence any business or exercise borrowing powers unless:… [6]
- Shares = allotted in cash, not less than the minimum subscription
- Every director has paid in cash full amount on each of the shares taken or contracted to be taken
- No money is/may be liable to be repaid to applicants for any shares (offered for subscription)
- a duly verified declaration abt compliance of conditions by CEO or 1 director and secretary has been filed with registrar (in prescribed form)
- Registrar has issued a certificate of commencement of business (conclusive evidence)
- Company has filed a prospectus or SILOP.
