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Chapter – VI

Prospectus . Chapter – VI . After the formation, the company needs necessary amount of money to finance its business. . By Sayyed Majid Pir Khel sayyedmajid@live.com. This Chapter contains. Introduction Definition of Prospectus of a Company Clauses of Prospectus

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Chapter – VI

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  1. Prospectus Chapter – VI After the formation, the company needs necessary amount of money to finance its business. By SayyedMajidPirKhel sayyedmajid@live.com

  2. This Chapter contains • Introduction • Definition of Prospectus of a Company • Clauses of Prospectus • Legal rules related to prospectus • Golden Rule for framing prospectus • Liability for mis-statement

  3. Introduction • After the formation, the company needs necessary amount of money to finance its business. • The amount so required is raised (collected) either from the general public or through private contracts. • But, for public companies the private amount may not be sufficient to meet the needs of (huge) business.

  4. Contd … • Therefore, general public is invited to purchase shares in the company in order to collect the money. • Thus Information of shares issued is given to public through some document. • Such document is known as ‘Prospectus’ • Thus ‘Prospectus’ is the document that contains the invitation for general public to purchase the shares of a company.

  5. Definition of Prospectus • Prospectus means any document prescribed and issued as prospectus by the company. It includes any notice, circular, advertisement or, any other document inviting deposits or offers from the public for subscription of any shares in the corporation … It is also known as ‘IPO Initial Public Offering’ or ‘Offer document’.

  6. Purpose • Purpose of the prospectus is to motivate or encourage general public to purchase the shares in the company.

  7. Contents of Prospectus • Prospectus of a company contains number of sections as required by the law but they may be summarized as following • General information of the company • Capital structure and present issue

  8. General Information • General information of the company contains • Name of the company • Offices of the company • Names, addresses, occupation and remuneration of the company directors and managers • Names and addresses of the company’s auditor, bankers, solicitors, and underwriters • Subsidiaries of the company if any • Outstanding litigations by or against the company if any • Property of the company i.e. plants, machinery, technology etc • Projects and locations of projects • Products of the company etc.

  9. Financial information and Present issue • Financial infromation and present issue of the company disclose information about • Authorized, issued, subscribed and paid up capital of the company • The size of the present issue • Apply for shares/ debentures • Availability of forms, prospectus and modes of payment • The date of opening and closing of issue.

  10. Legal rules relating to the prospectus • A prospectus must be dated. This date is taken as the date of its publication. • A copy of prospectus must be filed with Registrar of companies for registration before it is issued to the public.A registrar can not register a prospectus unless all the required legal formalities are fulfilled.

  11. Rules Contd … • A company which has proposed to make an application to a Stock Exchange for listing can not issue a prospectus unless approval of prospectus is obtained from the Securities and Exchange Commission

  12. Golden rule for prospectus • We know that a prospectus is document which induces the public to invest their money in the shares or debentures of the company. The public invest the money in the company on the basis of the information disclosed in the prospectus. Therefore the prospectus must present before the public, the whole and real picture of the company.

  13. Golden Rule Contd … All material facts related the nature of the company must be truly, honestly, and accurately disclosed in the prospectus. It should neither contain any mis-statement, untrue, or misleading statement nor omit to disclosed any material fact. This is known as the Golden Rule as to framing of prospectus…

  14. Liability for Mis-Statement • We have discussed in the Golden Rule that the prospectus of the company must disclose the real and true picture of the company. If there is any mis-statement or omission of material facts the promoters, directors or the persons responsible for issue of prospectus will incur the liability for the same …

  15. Thanks SayyedMajidPirKhel sayyedmajid@live.com

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