Prospectus – Company Law – Part 1

In Company Law, prospectus plays a significant role, where it contains all the material information (General, Financial & Statutory) of the company i.e., prices and shares detail of the specific company, which helps the general public who wishes to shop for a share therein specific company. As the prospectus may be a legally mandated document it must be registered under Register of companies.

OBJECTIVE OF ISSUING PROSPECTUS

1. To bring back the notice of the general public that a replacement company has been formed.

2. To preserve authentic record of the terms and allotment on which the general public are invited to shop for its shares or debentures.

3. To secure that the administrators of the corporate accept responsibility for the statements within the prospectus.

WHAT ARE ESSENTIALS FOR A DOCUMENT TO BE CALLED AS A PROSPECTUS?

To consider the certain document sort of a prospectus following essentials are must:

1. The document should invite the general public for the subscription of shares.

2. It must be made to the general public.

3. It must be made by the company.

4. It should relate to shares, debentures, and such other information pertaining to the company.

ISSUE OF PROSPECTUS

The issue of the prospectus is defined under section 26 of Companies Act, 2013:

1. If a company does not issue prospectus before 90 days from the date from which a copy was delivered before the registrar, then it is considered to be invalid.

2. If a prospectus was issued in contravention under section 26 of Companies Act, 2013 then the company can be punished with a fine of 50,000/- which may exceed up to 3,00,000/-.

GOLDEN RULE FOR FRAMING OF THE PROSPECTUS

The golden rule for the framing of the prospectus was laid down in the case of New Brunswick & Canada Railway & Land Co. vs. Muggeridge by Justice Kindersely.

It was held that those who issue prospectus have great advantages. Public is invited to take shares on the faith of the representations contained on the prospectus. The public is at the mercy of the Company promoters .Everything must therefore be stated with accuracy. Nothing should be stated as a fact which is not so and no fact should be omitted the existence of which might in any degree affect the nature of the principles and the advantage which prospectus hold out. In brief true nature of the company should be disclosed.

SECTION 26 OF THE COMPANIES ACT 2013 (MATTERS TO BE STATE IN PROSPECTUS) 26(1):

Every prospectus must be dated and signed and shall state such information and set out such reports on financial information as may be specified by SEBI in consultation with the Central Government.

26(2): The provision of the section 26(1) shall not apply in the following cases:

• If prospectus if issued to existing members or debenture-holders of a company or

• If prospectus issued relating to shares or debentures which are in all respect uniform with shares or debentures previously issued and for the time being dealt in stock exchange.

26(3): The date indicated in the prospectus shall be deemed to be the date of its publication.

26(4): Prospectus shall not be issued unless a signed copy of such has been delivered to the registrar for filing. It shall be signed by every director or proposed director or duly authorised attorney.

26(5): A prospectus issued under section 26(1) shall not include a statement purporting to be made by an expert:

Unless the expert isn’t engaged or curious about the formation or promotion or management of the corporate

1. The expert has given written consent to the issue of the prospectus and has not withdrawn such consent before the delivery of a copy if the prospectus to the registrar for filing and,

2. a statement to that effect shall be included in the prospectus

26(6): Every prospectus issued shall on the face of it,

1. state that a copy has been delivered for the filing to the registrar and

2. Specify the documents required by section 26 to be attached to the copy so delivered or refer to the statement included in the prospectuses which specify these documents.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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