Prospectus and Commencement of Business

Question 1

Define Prospectus

Answer 1

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 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

Question 2

Purpose of the prospectus

Answer 2

▪ If company wants to issue securities to large number of persons (public) it has to offer this
to general public through a prospectus.
▪ If general public wants to subscribe or purchase securities of any company, it can help
them by providing relevant information.

Question 3

Timing of prospectus

Answer 3

Company may issue a prospectus at any point in time of its life.
▪ Can issue shares before commencement of business.
▪ Can decide to issue shares in the future
Note: Existence of Prospectus ends after the purpose is fulfilled
(It is not like MOA or AOA that are permanent)

Question 4

Shelf-Prospectus

Answer 4

It 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.

Question 5

Supplement to Prospectus

Answer 5

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.

Question 6

Filing with registrar before issue

Answer 6

▪ On or before the date of publication, a copy signed by every person named as a director or
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

Question 7

Key Para required by Authorities

Answer 7

: 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.

Question 8

Approval of prospectus

Answer 8

▪ Prospectus must be approved by SECP prior to its issuance.
▪ Issuer or offeror shall submit a copy to SECP for approval at least 21 days before the proposed date of publication of prospectus.
▪ SECP may approve a prospectus if it contains such information and reports as may be
prescribed by regulations made by SECP (i.e. Public Offering Regulations, 2017)
▪ It shall be valid for a period of 60 days from the date of approval.
(Limit of 60 days maybe extended by SECP for some reasons to be recorded in writing)
▪ Prospectus cannot be issued, published or circulated without SECP approval.
(Same condition also applies on shelf-prospectus or supplement to the prospectus)
▪ SECP may impose further conditions or restrictions in this regard.
▪ Without prior written approval of SECP, no person shall issue, circulate, publish, telecast or
broadcast, an advertisement, other than prospectus, announcing a public offer of securities
unless a prospectus has been published and the advertisement gives an address in Pakistan
from which it can be obtained.
▪ Issuer or offeror shall not, at any time, vary the terms of clauses given in its prospectus
except with the approval of SECP
▪ SECP shall not be liable to any action in damages suffered due to any prospectus approved
by SECP

Question 9

Exceptions where approval of SECP is not required

Answer 9

▪ Securities offered by the State Bank of Pakistan;
▪ If securities are offered in connection with a private offer;
▪ Issue of shares of a subsidiary to the members of a listed holding company (as a dividend)
or any other distribution in the prescribed manner.
▪ If the securities are offered by the issuer to—
- Members or employees of the issuer; or
- Members of the families of any such members or employees; and
▪ If securities are shares and are offered as bonus shares to any or all of members of issuer.

Question 10

Publication of Prospectus

Answer 10

▪ Prospectus (full text/approved abridged form) shall be published at least in one Urdu and
one English daily newspaper.
▪ It shall be published in newspapers at least 7 days and at most 30 days before the
commencement of public subscription
▪ Sufficient number of copies of approved prospectus shall be made available (free of charge)
from the date of its publication in newspapers till the closing of the subscription at:
- Registered office of the issuer
- All securities exchanges of the country
- All the bankers to the issue
- Concerned share registrar
- Concerned ballotter and
- Concerned credit rating agency (if any)
▪ Prospectus and subscription form shall be
- Uploaded on website of the issuer; and
- Shall remain there from date of its publication in newspapers till the closing of the
subscription.

Question 11

Expert to be independent

Answer 11

Expert should be a person who is not, and has not been, engaged or interested in formation or
promotion or in management of company.

Question 12

Who can be Expert

Answer 12

“Expert” includes banker, securities advisor, engineer, valuer, accountant, lawyer and any
other person whose profession gives authority to a statement made by him..

Question 13

Expert’s consent:

Answer 13

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:
▪ Expert has given, his written consent to issue of 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.

Question 14

Criminal liability for defective prospectus

Answer 14

A person commits an offence, who:
▪ Makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
▪ Omits information or a statement from prospectus that Securities Act, 2015or any related
rule or regulation requires to include.

Question 15

Compensation for false or misleading prospectus

Answer 15

Every offeror, issuer, director of an offeror or issuer or any person who has signed prospectus
shall be liable to pay compensation to any person who acquires securities, in reliance on
prospectus and suffers loss in respect of them due to any incorrect, untrue or misleading
statement in prospectus or omission of any required matter

Question 16

CONDITIONS FOR COMMENCEMENT OF BUSINESS

Answer 16

▪ Private company 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:
- Shares have been allotted in cash not less than the minimum subscription
- Every director has paid to company in cash full amount on each of the shares taken or
contracted to be taken by him
- No money is or may become liable to be repaid to applicants for any shares which have
been offered for subscription;
- Filed with registrar a duly verified declaration by the chief executive or one of the
directors and secretary in prescribed form that conditions complied with
- Registrar has issued a certificate of commencement of business (conclusive evidence)
- Company has filed a prospectus or SILOP.
▪ Registrar shall, after making necessary enquiries, accept and register relevant documents.
▪ Registration shall be conclusive evidence that company is entitled to start its operations.
▪ 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 company until that date
▪ For contravention of above provisions, every officer or other responsible person shall, in
addition to other liabilities, be liable to a penalty not exceeding level 2
▪ Section not applicable to a public company who has converted from a private company

Question 17

Minimum Subscription

Answer 17

Means the amount, if any, fixed by MOA/AOA upon which 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.

Question 18

Document if Inviting general public, or when company is listed

Answer 18

Prospectus

Question 19

Document if Not inviting the public to subscribe

Answer 19

SILOP

Question 20

Issued a prospectus but could not obtain listing on
stock exchange

Answer 20

Repayment of all money on the basis of
prospectus and filing SILOP