Meaning and Nature of a Company :- What is a company?

1. Introduction :- IN the history we had companies Act 1857. The companies Act 1956 has now been replaced by Companies Act, 2013. Object:- object behind new act is said to bring about companies law at par with the best global practices. The act of 2013 has inter alia introduced ideas like Corporate Social Responsibility(CSR).

2. Meaning and Nature of a Company:- What is a company? An Association of persons for some common object or objects. Company is normally reserved for those associated for economic purposes to carry on a business for gain. Company means a voluntary association of person who have come together for carrying on some business and sharing the profits there from. Indian law provides two main types of organisation for such association Partnership and Company. A distinct legal person, subject to legal duties and entitled to legal rights separate from those of its members. This can be obtained easily and cheaply by registering an association as a company under Act, 2013.

3. It should be noted that the Companies Act, 2013 even allows a company to be formed and registered for the promotion of commerce, arts, science, sports, religion or charity i.e. for non –economic purposes. Definition :- Company to mean a company incorporated under this Act or under any previous company law. Justice Lindley:- A company is an association of many persons who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising therefrom. Chief Justice Marshall:- “A corporation is an artificial being invisible intangible, existing, only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.” Prof. Haney:- A company is an artificial person created by law, having separate entity, with a perpetual succession and common seal.

4. On registration , a company becomes a body corporate, i.e. it acquires a legal personality of its own, separate and district from its members. A registered company is therefore, created by law and law alone can regulate, modify or dissolve it. Characteristic Features of a company:- Incorporated association:- A company must be incorporated or registered under the Companies Act. Minimum number of members required for this purpose is seven in the case of a public company and two in the case of a private company, However section 3 of the Companies Act 2013 allows formation of ‘One person Company’. Legal entity distinct from its members:- The company is distinct from the persons who constitute it. It is capable of enjoying rights and of being subjected to duties which are not the same as those enjoyed or borne by its members.

5. Lord Macnaughten puts it “ The Company is at law a different person altogether from the subscriber's….. And though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands receive the proceeds the company is not in law the agent of the subscribers or trustee for them. B. F. Guzdar v. CIT A company can own property and deal with it the way it pleases. No members cab either individually or jointly claims any ownership rights in the assets of the company during its existence or on its winding up. Incorporation brings into existence a legal person which develops into its own separates from its members, may even sue one of its own members for libel.

6. RajendraNathDuttav V. ShibendraNath Mukherjee Held:- that for any wrong done the company must sue or be sued in its own name. Solomon V. Solomon and co. ltd. Solomon was a prosperous leather merchant. He converted his business into limited company. The company purchased the business of Solomon for $ 39000. the purchase consideration was paid in terms of $ 10,000 debentures conferring a charge over the company’s asset $ 20,000 in fully paid $ 1 share each and the liquidation proceedings commenced. The assets of the company were not even sufficient to discharge the debentures. The company had been validly constituted, since the Act only required seven members holding at least one share each. It said nothing about their being independent, or that there should be anything like a balance of power in the constitution of the company. Hence the business belonged to the company and not to Solomon. Solomon was its agent.

7. It is interesting to note that a company even enjoys fundamental rights similar to the natural persons. Consequently, if a fundamental right of a company is infringed, it is the company and not shareholders which can challenge infringement. Chiranjilalchaudhari v/s UOI Supreme Court Held:- That A company has a fundamental Right to own property and in the event of any infringement of such a right it is the company it self which can bring and action and not share holders. 3. Artificial Person :- The company though a juristic person does not possess the body of a natural being. It exist only in contemplation of law being an artificial person, However individual represents the company and accordingly whatever they do within the scope of the authority conferred upon them and in the name and on behalf of the company they bind the company and not themselves.

8. 4. Limited Liability:- The company is limited by shares, the shareholders, liability to contribute is measured by the nominal value of the shares he holds, plus any premium agreed on when the shares were issued , he is no longer liable to contribute anything further. If the company is limited by guarantee, the liability of each member shall be determined by the guarantee amount that is he shall be liability to contribute up to the amount guaranteed by him. If the guarantee company also has share capital the liability of each member shall be determined in terms of not only the amount guarantee but also the amount remaining unpaid on the shares held by a member. If a company is unable to pay its debts its creditors may petition the court to wind it up. A company being a juristic person is capable of contracting in its own name so also they can be a partner in a partnership firm.

9. 5. Separate property:- The property of the company is not the property of the share holders it is the property of the company. Bacha F. Guzdar V. CIT The supreme Court held that a shareholder is not the part owner of the company or its property, he is only given certain rights by law for example, to vote or attend meetings or to receive dividends. 6. Transferability of shares:- Joint stock companies has been that their shares are capable of being easily transferred. The a Act in sec 44 echoes this feature by declaring the shares, debentures or others interest of any member in a company shall be movable, property, transferable in the manner provided by the articles of the company. A share holder can transfer his shares to any person without consent of other person. However restriction on transferability of shares is possible by way of restriction in Articles of Association but it cant be absolute.

10. 7. Perpetual Succession:- Company being artificial person does not have allotted span of Life. Being distinct from members the death insolvency or retirement of its members leaves the company can go for ever. It continues even if all its human members are dead. In such circumstances the legal hairs of the deceased shareholders will become the members. 8. Common seal:- The common seal is a seal used by a corporation as the symbol of its incorporation. As per section 22 as amended by the companies Act, 2015 a common seal, if any through general or special power of attorney empower any person to execute deed on its behalf in any place either in or outside India. Manner of Affixing the Seal:- Regulation 79(2) of Table F provides that the seal of the company shall not be affixed to any instrument except by the authority of a resolution of Board.

11. Lifting the Corporate Veil :- The Chief advantage of incorporation is of course , the separate legal entity of the Company. Business of the artificial person is carried for the benefit of the some individual. For a while by fiction of law a corporation is a distinct entity yet in reality, it is an association of persons who are in fact beneficiaries of the corporate property. Gallaghar V. Germania Brewing Company Held :- The corporate personality of a company is used to commit frauds or improper or illegal acts. Since an artificial person is not capable of doing anything illegal or fraudulent. The façade of corporate personality might have to be removed to identify the person who are really guilty. This is known as lifting of corporate Veil. Solomon V. Solomon and co. Ltd. Held:- A company is an independent legal personality district form the individual who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances like fraud, improper conduct,

12. The advantage of “Distinct entity” and “Limited liability” may not be allowed to be enjoyed in certain circumstances. The Companies act2013 Provides For certis maintained the ain Cases while the separate entity of the Company is maintained , the directors or members are held personally Liable along with the company. MIS-Statement in prospectus. In case of misrepresentation in a prospectus, the company and every director, promoter, expert and every other person, who authorised such issues shall be liable to compensate the loss or damage to every person who subscribed for shares on the faith of untrue statement. For such a offence person may be punished with imprisonmrnt for term which shall not be less than six months but which may extend to 10years and shall also available to fine which shall not less amount involved in the fraud but which may extend to three times the amount involved in the fraud.

13. 2)Failure to return Application Money :- In case of issues of shares by a company to the public, if minimum subscription, as stated in the prospectus has not been received within 30 days of issue of prospectus or such other period as may be specified by the SEBI, then as per Rule 11 Companies allotment of securities Rules, 2014, The application money shall be repaid with in 15 days from the closure of issue and if any such money is not paid within such period, the director of the company who are officers in the default shall jointly and severally be liable to repay that money with interest at the rate of the 15% per annum. In case of default, the company and its officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues or one lak rupees for each day during which such default continues or one lakh rupees, whichever is less.

14. Misdescription of name :- officer of the company signs on behalf of the company any contract or any document will be personally liable for not mentioning or not properly mentioning name of the company . Punishment for contravention of sec 73 or sec 76 :- If company fails to repay the deposit or part thereof or any interest due thereon within specified time shall be punishable with fine which shall not less then one crore rupees but which may extend to ten crore.Every officer who is in default shall be punishable with imprisonment which may extend to seven years or fine and fine which can be not less then 25lakh which can extend to 2 crore or both.

15. 5. Fraudulent Conduct sec. 339:- In case of winding up of company it appears that any business of the company or any other person, or for any fraudulent purpose, those who are knowingly parties to such conduct of business may if the tribunal thinks it proper so to do be made personally liable without any limitation as to liability for all or any debts or other liabilities of company. 6. Liability for Ultra Vires Acts :- Director and other officers are personally liable for those acts which they have done on behalf of a company. 7. Liability under other statutes:- Every person who was director of that company at any time during the relevant previous year shall be jointly and severally liable for the payment of tax, Similarity under Foreign Exchange Regulation Act 1973 the directors and other officers may be proceeded individually or jointly for violations of the Act. façade of corporate personality will be removed or the person behind the corporate entity identified and penalised, if necessary.

16. Advantages of Incorporation 1)Independent legal entity 2)Limited liability 3) Perpetual Succession 4) Transferability of shares 5) Infinite membership 6) Mobilisation of huge resources 7) Separate Property 8) Ease in control and management

17. Disadvantages of Incorporation:- Formality and expense Loss of Privacy Divorce of control from ownership Detailed winding-up procedure Control by few Greater public accountability Possibility of frauds

18. Kinds Of Companies Two Common Type of Companies which can be registered:- Private Companies i) One person Company ii) Small Company b) Public Companies :- these companies may be incorporated either as limited liability companies or as unlimited liability companies Companies limited by shares Companies limited by guarantee Companies limited by Guarantee as well as by shares.

19. Companies can be classified as :- Statutory Companies Registered Companies Existing Companies Associations not for profit Government Companies Foreign companies Holding and subsidiary Companies.

20. Private Company:- Section 2(68) as amended by the companies Amendment Act 2015 :- A private company means a company having a minimum paid up share capital as may be prescribed and which by its articles:- Restricts the right to transfer its shares:- In order to prevent anybody Or everybody acquiring shares of the company by transfer and thereby defeating the very objective of promotion of the company as private company. It is important to note that the this restriction is relevant only in case of a Private company having share capital and therefore is incapable to a private company incorporated as a pure guarantee company.

21. b) Limit the number of its members to 200 not including :- A private company is required compulsorily to limit through its article, the number of members to 200. i) person who are in the employment of the company ii) person who having been formerly in the employment Where two or more person hold one or more shares in a company jointly they shall for the purpose of membership, be treated as single member. Debentures can be given to any number of persons, the only condition being that an invitation to the public to subscribe for debentures cant be made. Restriction on inviting public to subscribe for securities :- A private company can only collect its capital through a private approach and private approach shall mean giving opportunity of investment to the persons approached and not to others. There has to be at least two persons to form a private company:- A minor cant be a signatory to the memorandum since he is not competent to contract, the guardian of a minor can subscribe to a memorandum. The word Private Limited or Pvt. Ltd must be added at the end of the name. c) Prohibits invitation to the public to subscribe for any securities of the company.

22. The private Companies by restricting membership to not more than 200 and because of prohibition on public subscription to share or debentures or deposits do not involve the public money:- Privileges and exemptions:- Minimum Number of Members :- A minimum of two persons(as against seven persons in the case of public company) may form a private company . Minimum number of Directors:- A private company need not have more than two directors as against minimum three in case of public company. Quorum for the general meeting:- two members personally against 5, 15 or 30 members present on the date of meeting. Managerial remuneration:- no restriction can be, higher percentage of profit.

23. 5)Rotational retirement of Directors:- before the expiry other person can be appointed. 6) Loans for purchase of securities:- 7) Exemption from filing Board resolution:- 8) Loans to directors:- 9) Relaxation of ceiling on company audits:- One Person Company:- Sec 3(1)(C) as a private Company , ‘One Person Company’ is a one shareholder corporate entity, where legal and financial liability is limited to the company only. In India J.J. Irani Expert Committee recommended the formation of One- person Company. Sec 2(62) A company with only one person as its members. However the memorandum shall indicate the name of the other person, with his prior written consent in prescribed form who shall in the event of subscriber’s death or incapacity take over.

24. Relaxations available to one person company :- No need to prepare a cash flow statement. Annual return can be signed by the Director. No need of Annual General Body Meeting. One person Company with your Company as the sole director. As per the rues by central government Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company or be appointed as a nominee for the sole member of a one person company. The term resident in India means person who has stayed in India for a period of 182 days in one financial year. Shall not be member of more than one person company. No minor shall become member or nominee. One person company exceeds 50lakh rupees share capital and if average annual turnover exceeds 2 crore it shall cease to be one person company.

25. Small Company:- SEC 2(85) Company other then a public company Paid up share capital of which does not exceeds 50 lakh. Turnover does not exceeds Two lakhs. However small company does not include holding company or subsidiary company. Non- profit association. A company governed by special Act. One person company or small company cant be formed for non-economic objective as non- profit association.

26. Public Company :-Sec2(71) public company to mean a company which is not a private company and has a minimum paid –up share capital, as may be prescribed. A Company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. A private company may convert itself into a public company by amending its Articles of Association .

28. Statutory Company :- Bodies with special types of objects which it has been thought desirable encourage may be formed under general public Acts. • Life Insurance Corporation Act, • Reserve Bank of India, • This bodies are created by statute and do not necessarily requires to have memorandum of Association. • Foreign Company:- means any company or body corporate, incorporated outside India. • Which has place of business in India whether by It self or through an Agent physically or through electronic mode, or conducts any business activity in India in any other manner. • Holding and subsidiary Companies:- If one company controls another company the controlling company may be termed as the Holding company and the company is in control is subsidiary. • Associate Company:- Company in which that other company has a control of at least20% of the total share capital or business decisions under the agreement. Associate company is not subsidiary but may be joint venture company.

29. Producer Company:- body corporate having objects or activities specified in section 581B and registered as producer Company. Producer institution means a producer company or any other institution having only producer or producers. In the year 2002, they introduced the producer companies concept to the Indian economy. A producer company can be defined as a legally recognised body of farmers, agriculturists with the aim to improve the standard of their living, and ensure a good status of their available support, incomes and profitability. Illegal Association:- Anyassociation is formed and not registered under either the companies Act or any other law, it will be regarded as illegal Association. Articles of Association :- Sec 581 G Articles of Association of producer company is that the article have to contain certain mutual assistance principles apart from other relevant provisions.

30. The whole Process of formation of a company may be divided into four stages, namely:- Promotion Registration Floatation Commencement of business.

31. Promotion The person who assume the task of promotion are called promoters. A promoter may be an individual, syndicate, association, partner or company. Who is Promoter:- a) the person who has been named as such in prospectus or is identified by the company in the annual return referred to in section 92. b) Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise c) In accordance with whose advice, directions or instruments the Board of Directors of the company is accustomed to act. In short to say promoter is one who takes all necessary steps to create and mould a company and set it going. Legal Position of promoters The promoters stands undoubtedly in a fiduciary(trustee/beneficiary) position. They have in their hands the creation and moulding of the company, they have the power of defining how and when and in what shape and under whose supervision it shall come into existence and begins to act as a trading corporation.

32. Registration / Incorporation of a company Section 3 states that “A Company may be formed for any lawful purpose by Seven or more persons, where the company to be formed is to be a public company. Two or more persons, where the company to be formed is to be a private company. One person where the company to be formed is to be on One Person Company that is to say a private company, Procedure for registration:- Inter alia need to decide Type of Company whether a) public company b) Private Com Application for Availability/ reservation of name:- promoters need to obtain approval of proposed name from registrar of central registration centre. Preparation of memorandum and Articles of association. Preparation of other documents: a) Power of Attorney b) consent of directors, c) particular's of Managers d) affidavit from subscribers to the memorandum. Filing of application and documents for registration.

33. Intergrated process for Incorporation Application for allotment of Director identification number up to three directors, reservation of name, incorporation of company and appointment of directors of the proposed company shall be filed with registrar with registration fees. for filing intergreted incorporation form the perticulars of maximum of three members. The promoters or applicant of the proposed company shall propose only one name in e-form No. INC – 29. The promoter or applicant of the proposed company shall propose only one name in e-form no INC- 29 and Articles of association in the form INC-31. The promoter or the applicant shall sign and witness, the Memorandum of association and Articles of association.

34. Flotation :- Is a process of converting a private Company into a public Company by issuing shares to public. Certificate of Incorporation After scrutinising the documents filed and on being satisfied that they are in order that the requisites fees has been paid and that all other legal requirements have been duly complied with, the registrar will enter the name in register of company. Immediately after obtaining certificate of incorporation , company can commence with business.

35. Memorandum of Association The MOA of company contains the fundamental condition upon which alone the company has been incorporated. According to palmer “ The MOA is a document of great important in relation to the proposed company. It contains the objects for which the company is formed and therefore identifies the possible scope of its operations beyond which its action cant go. It defines as well as confines (limits anything beyond this is ultra vires) a the power of the company. The purpose of the memorandum is to enable the shareholders creditors and those who deal with the company to know what is its permitted range of activities. It tells the shareholders the purposes for which their money is likely to be used. section 13 provides for alterations in MOA after complying with procedure.

36. Form and Contents Sec 4(6) as per Table A,B,C,D and E in schedule I following contain: Sec 4(1) (a) ComSection 3 and 4 with section 7 require the MOA to be signed by at least seven persons in case of a “Public Company” Two in case of Private Company and One in case of One Person Company and at list one witness for attest the signature of each of subscribers must also write number of shares he takes, all the signatories shall also add their address, description and occupation. Section 4 requires the memorandum of company to contain following. The Name of the company being distinct entity must have a name. Name of the state in which office is registered. the object for which company is proposed to be incorporated. Liability of the company whether limited or unlimited. The amount of share capital with which company to be registered.

37. f) The Number of shares each subscribers to the memorandum intends to take. g) The capital clause. h) Name of nominee in case of One Person Company. The association or subscription clause:- signing of memorandum Draft MOA Memorandum of Association of a Company Limited by Shares The name of the company is “The Eastern steam Packet Company Limited”. The registered office of the company will be situation in the state of Bombay. The main object to be pursued by the company on its incorporation are the conveyance of passengers and goods in ships or boats between such places is the company may from time to time determine. The objects incidental or ancillary to the attainment of the above objects are the acquisition, construction, building, setting up and provisions of establishments of repairing ships or boats, for the training of personnel required for the running of ships or boats and the doing of all such others things as are conducive to the attainment of the foregoing main objects.

38. The objects for which the company is established are “carrying on the business of carriers by land and air and the running of hotels for tourists”. 4) The liability of the member is limited. 5) The share capital of the company is two hundred thousand rupees, divided in to one thousand shares of two hundred rupees each. We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this memorandum of association, and we respective agree to take the number of shares in the capital of the company set opposite our respective names:-A 1)A.B of 200 2)CD of 25 3)EF of 30 4)GH of 40 ___________________________________________________________ Total share taken Dated The day of __________of 19 Witness to the above signatures XY of

39. Articles of Association The articles of association are its bye-laws or rules and regulations that govern the management of its internal affairs and the conduct of its business. They define the powers of its officers. They define the powers of its officers. They also establish contract between the company and the members and between the members inter se. This contract governs the ordinary rights and obligations incidental to membership in the company. They set out the manner in which the company is to be administered. Contains rules and regulations relating to following:- Share and their value and their division into equity and preference shares Right of each class of shareholders and procedure for variation of their rights. Procedure relating to the allotment of shares, making of calls and forfeiture of shares. Increase, alteration and reduction of share capital. Rules relating to transfer or transmission of shares and the procedure to be followed for the same.

40. 6) Lien of the company on shares allotted to the members for the amount unpaid in respect of such shares and the procedure in respect there of. 7) Appointment, remuneration, powers, duties, etc. of directors and officers of the company. 8)Constitution and composition of Audit Committee, remuneration committee, CSR Committee. 9) Procedure for conversion of shares into stock and Vice Versa. 10)Notice of meeting, voting rights of members, proxy, quorum, poll, etc. 11) Audit of accounts, transfer of amount to reserves, declaration of dividend, etc. 12) Issue of shares certificates including procedure for issue of duplicate shares. 13) Winding up of the company.

41. Doctrine of constructive Notice :- section 399 provides that the Memorandum and Articles when registered with registrar of companies becomes the public documents and then they can be inspected by any one by electronic means on payment of the prescribed fees. Company shall on payment of prescribed fees send a copy of each of the example Memorandum Articles agreement and resolution to the members within seven days of request. Failure to supply will make officer liable to. There for any person who contemplates entering into a contract with the company has the means of ascertaining and is thus presumed to know powers of the company and extent to which they have been delegated to the directors. Every person dealing with the company is presumed to have read these documents and understood them in their true prospective. This is known as Doctrine of Constructive Notice. Even if party dealing with the company does not have actual notice of the content of documents of theses documents it is presumed that he has implied notice of them.

42. Doctrine of indoor management: If you desire to buy bond or debenture, issued by company, you are not going to ask director's of the company to produce shareholders resolution authorising them to issue bonds before you subscribe to same. Since there are no means to ascertain whether necessary sanctions and approvals have been obtained before certain officers exercises his power which as per articles can only be exercised subject to certain approvals, those dealing with the company can assume that if the directors or other officers are entering into those transactions they, would have obtain the necessary sanctions. This is known as indoor management. Thus Doctrine of indoor management throws a burden on people entering into contract with a company by making presumption that they would have read the companies MOA and AOA even though they might have not actually read them. The person dealing with company are not bound to inquire into the regularity of internal proceedings.

43. Exceptions:- relief on the ground of indoor management cant be claimed by outsider dealing with the company in following circumstances:- Whether the outsider have knowledge of irregularity:- any person who has actual or even an implied notice of lack of authority of a person acting on behalf of the company. Person knowing well that the director do not have authority to make transaction but still enters into cant seek protection under the rule of indoor management. No knowledge of articles:- even rule cant be invoked of indoor management in such cases. Forgery:- The rule will not be extended to transaction involving forgery. Negligence:- The doctrine of indoor management in no way reward those who have negligent. Question as to existence of the company or agency it self.

44. Prospectus :- After Certificate of incorporation is obtain the public company are taken over by its directors' who will have Board of directors with one chairman and then they attends various issues like Appointment of experts , agencies, auditors etc. Underwriting contract brokerage contract. listing of shares on stock exchange. Drafting of Prospectus. Meaning and Definition:- Any documents described or issued as a prospectus. Circular, advertisement or other document inviting offers from the public for subscription or purchase of any securities of body corporate.

45. The Documents shall be called as prospectus:- It invites subscription to or purchase of shares or debentures or an other security of a body corporate. The prospectus is to invite public. If any company invites subscription or allots any security to 200 or more persons in a financial year, it will be said to have made a public offer. Contains of the Prospectus:- Information to be given in a prospectus. Report to be set out in the Prospectus Declaration to be made. Other matters.

46. Information to be given in a prospectus:- Names and Addresses of registered office of company, secretary, chief financial officer, auditors, legal advisers, merchant bankers and co-managers to issue, underwriters, credit rating agency for the issues. Dates of the opening and closing of the issues, and declaration which shall be made by the board or the committee. A statement by the board of director's about separate bank account where all monies received out of the issues are to be transferred. Disclosure of details of all monies including utilized and unutilized monies out of the previous issues in the prescribed manner, Consent of the directors auditors, bankers, trustees, solicitors, advocates, merchant bankers, lenders and expert's; The authority for the issues and the details of the resolution passed; Procedure and time schedule for allotment and issues of security: The Capital structure in the manner Prescribe; Main objective of the company; The purpose for which fund is required; The funding plan;

47. Xii) The summary of project appraisal report Xiii) The schedule of implementation of the project; Xiv) Interim use of funds. Xv) Risk factors specific to the project. Xvi) Deadline for completion of period, XVII) Litigation pending’ Xviii) Minimum subscription, amount payable by way of premium, shares otherwise then cash; Details of directors sources of promoters contribution. Reports of auditors

48. Shelf Prospectus:- means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. Shelf Prospectus may be issued by any class or classes of companies as the securities and exchange Board of India may provide by regulation. Raising finance from the public by means of various securities is a time consuming process. Every time any such issues comes fresh prospectus is required to be filed. In order to minimise the burden on the companies shelf prospectus has been introduced.

49. Red- Herring Prospectus Sec:- 32 A Company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of prospectus. Red herring prospectus means a prospectus which does not include complete particulars of the quantum or price of securities included therein. A company proposing to issue a red herring prospectus shall file it with the Registrar at least three days prior to the opening of the subscription list and offer. Red herring prospectus shall carry same obligations as are applicable in case of prospectus. Differences between Red Herring prospectus and prospectus should be highlighted.

50. Mis-statement Statement included in prospectus shall be deemed to be untrue; Statement is misleading in the form or context in which it is included where any inclusion or omission from a prospectus of any matter is likely to mislead. Thus in regards to considering prospectus as fraudulent, it is not necessary that there should be false representation in it even if every word included in the prospectus is true, the suppression of material facts may render it fraudulent. Sometime half a truth is no better than downright false hood. If there is any misrepresentation of material facts in prospectus there may arise civil liability as well as criminal liability. Punishment not less then six months which can be extended to ten years and fine not less then amount involved in fraud which can extent to three times the amount involved in the fraud.