A prospectus may be defined as any advertisement, notice circular or other invitation, offering to the public for subscription or purchase of any share or debenture of the company. It is the nature of the contract between the company and the person who buys the shares.
The object of these documents is to convince the public to make an application for shares or debentures in the company. A public company is entitled to subscribe to its shares by means of a prospectus after receiving the certificate of incorporation.
Prospectus or Statement in Lieu of prospectus must be submitted to the registrar’s office before publication. Prospectus may be dated and signed by all the directors or proposed directors or his agents authorized in writing. Every copy issued to the public must, on the face of it state that a copy has been so submitted to registrar’s office.
Grounds for Issuing Statement in Lie of Prospectus
Do not want to Issue Prospectus
If a company does not want to issue a prospectus to the public for subscription of the shares, this statement is required to be issued to the public for necessary information.
It must be signed by every person named in it as a director or by his agent authorized in writing: The nature of the information of this document is more or less similar to that given in the prospectus.
A copy of this statement must be filed with the registrar within the prescribed time. This provision does not apply to a private company.
A share certificate is a document issued under the common seal of the company and it states the extent of the interest of its holder in the company’s capital.
This certificate is usually given free of charge to every member whose name is entered in the register of members. It indicates the name, address and other particulars of the holder, the number of shares and the amount paid upon share held by him.
This document is issued under the common seal of the company in respect of fully paid up shares. It is a negotiable instrument which is transferable by mere delivery. It must be stamped – according to the market value of the shares. It may be issued with- coupons attached by means of which the holder is entitled to claim and dividend.
Every company must have a common seal with its registered name engraved there in legible letters. It acts as the official signature of the company. Regulations governing the use and custody of the seal are laid down in the Articles of Association. It is generally to be used by the authority of the directors.
It is not necessary to use it on all documents. But the seal is required on documents when demanded by the company Ordinance or Articles of Association i.e. debentures, share certificate or share warrant.
A dividend is that portion of the company’s net profit which is distributed among the shareholders in proportion to the number of shares holding. It is first declared at the Board of Directors Meeting which is finally approved by shareholders at the annual general meeting.
Until a dividend is declared, no shareholders can claim any return on the capital he has invested in the: company. It must be paid out of the profits of the company. The directors are empowered to transfer some portion of profits to reserve fund before recommending a dividend.
It is the minimum amount of shares subscribed by the public before the directors can proceed to allotment. The amount of minimum subscription fixed by the Memorandum or the Articles and named in the prospectus under the heading i.e., preliminary expenses, underwriting commission, working capital and repayment of loans.
If no such amount is fixed then the whole of the capital offered for subscription must be subscribed by the public. This is intended to ensure that the company will not commence the business without adequate capital.
It signifies a change in ownership of the securities through the operation of law in case of death or insolvency of members. The right of the member is automatically transferred to his legal representatives after his death.
Similarly, on becoming bankrupt, a member’s shares may be transferred to a trustee by operation of law. The trustee must, however, prove to the company that he is entitled to deal with bankrupt’s shares.
The person who takes the risk to purchase a specified number of the shares and debentures of a newly floated company is known as an underwriter. He receives a commission in exchange for his services which is called underwriting commission.
So, the act of sale insurance by a specialized person in consideration of commission is named as underwriting. Sometimes underwritings do not want to take the whole risk, he may transfer a part to sub-underwriter which is arranged by means of a contract.
Contents of the Prospectus
The object of these documents is to convince the public to make an application for shares or debentures in the company. A public company is entitled to subscribe to its shares by means of a prospectus after receiving the certificate of incorporation. Before publication, it must be submitted to the registrar office.
The prospectus may be dated and signed by all the directors or proposed directors or his agents authorized in writing. Copies should be submitted to the public and must mention it about submission to the public.
Every prospectus issued by a public company must contain particulars:
The main object for which the company is formed.
Particulars of Founders
- The names, addresses and other particulars of founders.
- Number of founders.
- Their interest in the property and profit of the company.
The different classes of shares, number of each kind value of the share.
Dividend capital and voting rights various classes of shares.
List of Directors
The names addresses and description of directors or proposed directors.
The number of shares if it is described in the Articles directors.
Remuneration of Directors
Any provisions in the Articles as to the remuneration of directors.
The minimum subscription on which the directors may allot the shares. Amount payable on application and allotment.
Time of Opening
The lime of the opening of the subscription list.
The amount of the preliminary expenses commission so payable in this regard.
If the company has issued the various types of securities within the preceding two years, the results of the issue is to be given.
The amount of underwriting commission paid within previous two years in respect of issue of shares. The names of underwriter of shares must be mentioned.
The value and other detail of property purchased. The amount has been paid in cash or shares or debentures for such property.
Name of Vendor
The name and addresses of vendors. The amount paid or payable in cash or securities.
Date time and condition of contract made by founders with different parties.
Interest of Directors
Full particular of the nature of interest of each director in all the matters of the company.
If the company has already been carrying on business prior to the issue of prospectus, the auditor’s report must contain i.e. profit and losses, asset and liability, rate of dividend etc.
By name accountant’s report must also be included in the prospectus if the procedure of the issue of shares are to be applied in the purchase of any business.
The name the auditors of the company.
The benefit given to any promoter in term of money or goods with the two previous years and the consideration given by him.
Particulars of .any preferential treatment given to any person to subscribe for any share or debenture of the company.
Duration for which the business is to be conducted where the period is less than three years.
If there is any restriction imposed by the Articles upon the members of the company in respect of proxy, voting attending and speaking.
Filling of the Prospectus
Statement that a copy has been submitted to the registrar’s office.