prospectus

Question 1

Prospectus:define

Answer 1

 Any document described as a prospectus.
 It includes a red herring or a shelf prospectus.
 It also includes any notice, circular, advertisement or other documents which intend to invite offers from the public for the subscription of securities or purchase of any securities of a body
corporate

Question 2

Matters to be stated in a prospectus:

Answer 2

 Prospectus to be dated and signed and to state specified information:
 Every prospectus shall be dated and signed and shall state such information and reports on
financial information as specified by the SEBI in consultation with the Central
Government
 The prospectus shall make a declaration about the compliance of the provisions of the
Companies Act, 2013 and a statement that nothing in the prospectus is against the
provisions of the Companies Act, 2013, SCRA Act, 1956 and SEBI Act, 1992.
 Exception: The above provision shall not be applicable to the following:
 The issue of the prospectus to the existing members or debenture-holders of the
company relating to shares or debentures of the company, whether an applicant has the
right to renounce shares or not.
 The date indicated in the prospectus shall be deemed to be the date of its publication.
 Prospectus to be issued after delivery to Registrar for filing: Every prospectus shall be, on or before
the date of its publication, delivered to the Registrar for filing and a copy thereof signed by
every person who is named therein as a director or proposed director of the company or by
his authorized attorney.
 Prospectus not to include Experts’ statement under certain circumstances:
 The prospectus shall not include a statement made by an expert.
 The statement of an expert in the prospectus shall be valid if the expert is not or has not been
engaged in the promotion or formation or management of the company and has given his
written consent to the issue of the prospectus and has not withdrawn such consent before
the delivery of the prospectus to the Registrar for filing.
 ‘Expert’ includes an engineer, a valuer, a Chartered Accountant, a Company Secretary, a
Cost Accountant and any other person who has the power or authority to issue a certificate
in pursuance of any law for the time being in force.
 Prospectus to be issued within a specified time: The prospectus shall be issued within 90 days
from the date on which the copy of the prospectus was delivered to the Registrar.
 Punishment for the contravention of any of the above provisions:
 For the company: Minimum ₹50,000 and maximum ₹3,00,000.
 Every person who is knowingly a party to the issue of such prospectus: Minimum ₹50,000
and maximum ₹3,00,000.

Question 3

Allotment of Securities by Company

Answer 3

 The allotment of securities by the company shall be made only after fulfilling the following
conditions:
 The amount stated in the prospectus as the minimum subscription is subscribed.
 Sums payable on the application in respect of minimum subscription is received by the
company by cheque or any other instrument.
Amount of Application Money:
 The application money on every security shall not be less than:
 5% of the nominal amount of security, or
 Such other percentage or amount specified by the SEBI.
The time limit for minimum subscription:
 The amount stated in the prospectus as the minimum subscription and the sums payable on the
application shall be received within:
 30 day of the issue of the prospectus, or
 Such other period as specified by the SEBI.
Refund of Application Money:
 If the minimum subscription stated in the prospectus and the sums payable on the application
are not received within the period specified above, the company shall repay the application
money within 15 days from the closure of the issue.
 If such money has not been repaid, then the directors who are officers in default shall be
jointly and individually liable to repay such money with the interest rate of 15% p.a.
 The application money to be refunded shall be credited only to the bank account from which
the subscription was remitted.
Return of Allotment:
 If the company makes any allotment of securities, it shall file a return of allotment with the
Registrar within 30 days from the date of allotment in Form PAS-3 along with fees as prescribed
Details to be attached with Form PAS-3:
 A list of allottees stating their names, address, occupation, if any, and a number of securities
allotted to each allottee.
 The list shall be certified by the signatory of the Form PAS-3 as being complete and correct as
per the records of the company.
Other attachments with Form PAS-3:
 When securities are issued for consideration other than cash, there shall be a copy of the
contract attached to Form PAS-3, duly stamped, pursuant to which the securities have been
allotted together with any contract of sale of a property, asset, services or any other
consideration.
 When the contract (mentioned in the above point) is not in writing, the company shall furnish
along with Form PAS-3 the particulars of the contract (duly stamped as would have been in
the case of the written contract), and those particulars shall be deemed to be an instrument
under the Indian Stamp Act, 1899.
 A report of a registered valuer in respect of the valuation of the consideration shall be attached
with the contract mentioned in the above points.
 In the case of the issue of bonus shares, a copy of the resolution passed in the general meeting
authorizing such issue shall be attached with Form PAS-3.
Punishment for Default:
 In case of contravention of any provisions of this section, the company and every officer in
default shall be liable to a penalty for each default of ₹1,000 for each day during which such
default continues or ₹1 Lakh, whichever is less.