Professional Documents
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Basic Series - Prospectus - Commencement of Business
Basic Series - Prospectus - Commencement of Business
6
Sunday, August 6, 2023 2:42 PM
Prospectus
Saturday, July 22, 2023 10:57 AM
It is talking about offeror - Substantial Shareholder which is selling its shares to public through
Pakistan Stock Exchange (PSX).
Section 57. The Company
(1) No prospectus shall be issued by or on behalf of a company unless on or before the date of its publication, a copy thereof signed
by every person who is named therein as a director or proposed director of the company has been filed with the registrar.
As per law, there are minimum 3 directors requirement for unlisted company
and there are minimum 7 directors requirement for listed company. In this
case, Unlisted will specify the name of proposed director in prospectus and it
is also signed by that proposed director.
(2) In case of any contravention of this section, the company and every person who is a party to the issue, publication or circulation
of the prospectus shall be liable to a penalty not exceeding of level 2 on the standard scale.
Section 2(xli)
"Prospectus" means 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 the 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 nonbanking finance
companies;
Purpose of prospectus
If a company wants to issue securities to general public, it has to issue a prospectus. This prospectus provides the public with relevant
information to decide whether they should invest in the company or not.
Risk Factors
It is customary for the authorities to require the company to arrange and write the risk factors separately in prospectus. All the factors
that could be risky for investment in the company are written and readers of the prospectus are specifically advised to read the same
before making any investment decision.
Practical Example in relation to Risk Factors from the Prospectus of Secure Logistics Group
Section 87 of Securities Act, 2015
(2) Subject to the provisions of this Part, no person shall make a public offer of securities unless the issuer or offeror of the securities has
submitted for approval to the Commission, and the Commission has approved prospectus.
In this case the offer or invitation to subscribe the shares shall not be made to more than 50 persons.
It is governed by Private Placement of Securities Rules, 2017. (Not in Course)
(c) issue of shares of a subsidiary to the members of a listed holding company by way of specie dividend or any other
distribution in the prescribed manner.
It is a advance concept.
The basic concept behind this is if Listed Company is distributing dividend in kind and that dividend is the
shares of subsidiary company.
Right Issue
Section 87 (5)
A prospectus approved by the Commission shall be valid for a period of sixty days from the date of such approval or for a longer period
approved by the Commission in case of shelf registration, provided that the supplement to the prospectus for each offering shall contain
updated disclosures:
Provided that the time period of sixty days provided for approval of prospectus may be extended by the Commission by reasons to be
recorded in writing.
"Shelf Registration" means an arrangement that allows 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.
It is applicable in case of Shelf Registration. Whenever new tranche is being offered, It contains a documents known
as supplement to prospectus which describe the update regarding previous tranches and overall update of the
project.
Illustration:
No liability of Commission
Section 87 (6) The Commission shall not be liable to any action in damages suffered as a result of any prospectus approved by the
Commission.
Section 87 (7) A person who, in connection with a public offer of securities, makes a false or fictitious application, commits an offence.
Crime
(1) No person shall issue, circulate and publish prospectus including a shelf prospectus or supplement to the prospectus until it
has been approved by the Commission which approval may be subject to such conditions or restrictions as the Commission considers
necessary.
Approval Required
(2) The issuer or the offeror, as the case may be, shall, not less than twenty one days before the proposed date of publication of
the prospectus, submit a copy to the Commission for approval.
(3) Where a public offer of securities is to be made in Pakistan the issuer or offeror, as the case may be, shall publish the
prospectus in full text or in such abridged form as may be prescribe, at least in one Urdu and one English daily newspaper.
Short Form
Why short form because usually Prospectus is a voluminous document and it will become very
costly if the company will publish a whole document in news paper. Solution to this problem is to
public an abridged version of prospectus.
(4) The prospectus shall not be published in the newspapers less than seven days or more than thirty days before the
commencement of the public subscription.
(5) The issuer or the offeror, as the case may be, shall make available sufficient number of copies of the prospectus approved by
the Commission under subsection (1), free of charge, from the date of its publication in the newspapers till the closing of the
subscription at :
the registered office of the issuer,
with all the securities exchanges of the country, (i.e. Pakistan Stock Exchange)
with all the bankers to the issue,
Practical Example:
For Balloting
Restriction
(7) No person shall issue, circulate, publish, telecast or broadcast without the prior written approval of the Commission, an
advertisement, other than a prospectus, announcing a public offer of securities for which a prospectus is required under this
Part {unless a prospectus has been published and the advertisement gives an address in Pakistan from which it can
be obtained}
Company A has entered into an Agreement with Pakistan International Airline (PIA) that in each
of it’s boarding pass, an advertisement in relation to public offering shall be printed. This is legal
in eyes of law if:
• Written approval of Commission has been obtained
• Prospectus has already published
• Advertisement contains full address from which prospectus can be obtained
(8) The issuer or offeror, as the case may be, shall not, at any time, vary the terms of the clauses stipulated in its prospectus
except subject to the approval of the Commission.
Modification in Prospectus is not allowed unless approval from SECP has been obtained
A prospectus shall not contain a statement purporting to be made by an expert unless the expert is a
person who is not, and has not been, engaged or interested in the formation or promotion or in the
management of the company.
In order to avoid the conflict of interest and in order not to harm the trust or
confidence of public with respect to such statement by expert.
Illustration:
Practice Questions - 1
Sunday, August 6, 2023 2:44 PM
(e) in the case of a company which has not issued a prospectus inviting the public to subscribe for its shares, there has been
filed with the registrar a statement in lieu of prospectus as per the Second Schedule annexed to this Act.
(2) The registrar shall, on filing of a duly verified declaration in accordance with the provisions of sub-section (l) and after making
such enquiries as he may deem fit to satisfy himself that all the requirements of this Act have been complied with in respect of the
commencement of business and matters precedent and incidental thereto, accept and register all the relevant documents.
(3) The acceptance and registration of documents under sub-section (2) shall be a conclusive evidence that the company is entitled
to start its operations and exercise any borrowing powers.
(1) If any company starts its business operations or exercises borrowing powers in contravention of section 19, every officer or other
person who is responsible for contravention shall without prejudice to other liabilities be liable to a penalty not exceeding level 2 on the
standard scale.
(2) 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 the company until that date and on that date it shall become binding.
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