EE) Prospectus & Allotment of Secui Chapter 3: Prospectus & Allotment of Securities Sec 24,30,33,38 & 41 is being deleted by ICAI from new syllabus. | ___Ea Provisions 1. Subscetion 1 of sec. 23 deals with the ways a Public company can issue its securities namely: a, To public through Prospectus (known as Public offer ie, IPO & FPO) , oF b.. Private placement, or By rights or bonus issue, and In case of a listed company or a company who proposes to get its securities listed, igsue shall be governed by the act as well asthe provisions of SEBI Act 1992. 3, Subsection 2 of sec, 23 deals with the ways a Private company ean issue its securities, Since a Private Company is prohibited from access to the public in raising its capital, it ean issue is securities by way oft a, Rights issue or bonus issue, oF b, Private placement only. i.e. a Private Company eannot issue its securities using “Public Offer” Chart for Understanding iny document deseribed or issued as a prospectus and includes a red herring, prospectus referred to in section 32 or shelf prospects referred to in scetion 31 oF any notice, Circular, advertisement or other document inviting offers from the public for the subscription oF purchase of any securities of a body corporate: CoesProspectus & Allotment of Securities Deemed Prospectus: ‘Ary dacement™ by which the afr for sale fo the public is mack, where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the publi, shall be deemed to be a prospects issued by the company Provisions applicable: All enactments/ rules provisions relating to “contents of prospectus’ and! “liability for misstatement in prospectus’ applicable co Prospectus shall apply to Deemed Prospectus also, Presumption of Prospectus: Unless contrary is provided, it shall be evidence that an allorment of Cran agreement to allot, securities was macde with a view co the securities being offered forsale to the publi if its shown ~ a. that an offer of the securities or of any of them forsale to the public was made within six months after the allotment or agreement to allot; oF that at the date when the offer was made, the whole consideration to be received by the company in respect ofthe securities had not been received by it. ‘Contents of Deemed Prospectus: As per this subseetion, contents of deemed prospectus sal be as under ~ i) Contents specified in see. 26 i) the net amount of the consideration received or to be received by the company in respect of the securities to whieh the offer relates; and time and place for inspection of contracts where under the securities have been or to be allotted. Note :It shall be deemed that the persons by whom the offer to the public is made were named in the prospectus as the diecetors of the company. ia) Signing of Deemed Prospectus: The deemed prospectus must be signed by ~ In ease ofa Company: by 2 directors In ease of Firm: by-not less than one-half ofthe partners 2. Demand Money oR a “2 % & Investors Properly Drafted Prospectus pee anneal document which demands money ‘Ss | Prospectus Prospectus pes All enactments/ rules/provisions relating to ‘contents of prospectus? and. “Tiability for misstatement in prospectus’ applicable to Prospectus shall apply to Deemed Prospectus also. by 2 directors by not less than one-half of the partnersContents of Prospectus hr 1, Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, of by or on behalf of any person who is or has been ‘engaged or interested in the formation of a public company, shall be dated and signed and shall state such information and set out such reports on financial information as may Ihe specified by the § Board in consultation with the Government. Provided that until the Secusities and Exchange Board specifies the information and reports on financial ction, the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, in respect of such financial information or reports on financial information shall apply 2. No prospectus shall be issued by of on behalf of a company of in relation co an intended company unless on or before the information under this sub: date of its publication, there has been delivered to the Registrar for filing, a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his duly authorised Expert not engaged of interested inthe formation or promotion or management and An expert has given his written consent # Every prospectus issued shall, on the face of it State that a copy has been delivered for fling to the Registrar Specify any documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents. ‘© Within 90 days from the date on which a copy thereof is delivered to the Registrae for filling Make a declaration about the compliance of the provisions of this Acts applicable for time being like SEBI, SCRA, ete, 1. The section is not applicable «© existing shareholders or debenture holders. 2. The section is not Applicable to issue of shares. of debentures of similar nature which are already issue by the company Punishment: Company shall be punishable with fine fifty thousand rupees to three Jak, Every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend co three years oF with fine which shall be fifty thousand upees to three lakh rupees, Provisions ‘Once funds are raised through a given prospectus, the principles of “doctrine of ultra vires” (mutatis mutandis) ‘comes into play ie, che company has to use the funds strict in accordance with the prospects. prsProspectus & Allotment of Securities ited: A special resolution in general ‘meeting shall be required to wary — the terms of any contract referred to in the prospectus, b, the objects for which the prospectus was issued and ‘The prescribed details of the notice shall be published in ‘two newspapers, one in English and other in vernacular Ianguage, circulating in the city in which the registered office of the company is situate. Restriction on use of money raised: 2 proviso to subsection 1 states that the money raised through prospectus 5 © shall not be used © for buying, trading, or otherwise dealing © in equity shares © of any other listed company, i.e. Securities other than equity shares of other listed company + any security of an unlisted company can be dealt with such money raised through prospectus. Offer of ext to Dissenting shareholders Starcholees terms/objects (known a8 Dissenting Shacholder, all be or ieoanere 2 Pepto sharcholee “the expe, muon nl enon al be peeselbed by the SEB ela Offer document to be deemed as Prospectus:Money | In case of IPO/FPO, the money goes Utilisation | into the coffers (ie. hands/ accounts / by. funds) of the company. Minimam | Minimum subscription applies t0 Subscription | IPO/FPO. Minimum | In ease of IPO/FPO, minimam sam application | payable on application shall not be less ‘money | than twenty five per cent of the issue payment _| prices Chart for Understanding Re ce Nooo u A LLC Eee panes deital Peed RU Lea Lue ee Earn pea) Petes Seer tats ee CPT) Number of shares demanded by public 1,20,54,60,620 Da Te ee ne tag lt Peed Provisions Sec 291) makes jt mandatory fr every company making public offer and such other class oF classes off publie compaiiies as may be prescribed, to issue its securities in hs ~~ Dematerialized formin compliance with the provisions of the Depositories Act, 1996, Hence a public or of seus cana be made in pica form Sec 29(1A) Provides that, In case of such class oF classes of unlisted companies as ‘may be prescribed, the sceuritics shall be held or transferred only in dematerilised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder rot making a public offer) may, a its option: 1, convertits securities (i.e. securities which are alteady issued in physical form); or 2. issue ic. fresh issue ) its securities In physical form by complying with the provisions of the Depositories Act, 1996, Any company other than a company mentioned in 29(1) (Le. any company which is Si Nofser shal naka abc aspen ine of pce scr aki || gh re ees Tiemcameane oes | [amie smiths taut ade taped ee nae Chart for Understanding PaProspectus & Allotment of Securities [EUS company Any Other Issue a — P+ ) ‘Meaning_of Shelf Prospectus: “Shelf Prospectus’ means a prospectus in respect of which the securities or class of securities, included therein, ate issued for subscription in one or more isstes over 4 certain period without the issue of a further prospectus Eiling with ROC: To be fled with ROC at the time of 1* offer of securities included therein, Validity: One year from the date of opening of the first offer of securities under that (ies Shel) prospectus Advantages of Shelf Prospectus: In respect of a second or subsequent offer of such securities ised during the period of validity of that prospectus, no further prospectus is required, When a company has undergone some changes regarding its financial position (eg, borrowed a long term loan), oF created new charge between the first offer and subsequent offer under shelf prospectus, an Information Memoranda containing details of such changes, shall be filed with ROC within preseribed time (one month prior to the issue of subsequent offer, ithdrawal of Applications Ifa company or any other person has received applications for allotment Of securities along with advanee payments, then the company or such other person shall intimate the cchanges to such applicants, and an option to withdraw their application shall be given 10 such applicants, and if'such applicants desire to withdraw their application, all monies received from them shall be refunded within 15 days. __ *“"“" EEE: =) - Ee) ——_ ann ———“ Shelf Prospectus Information Memorandum ¥Ys/2016 Issue Issue Issue Issue 31/5/2017 Shelf Prospectus ieee Prospectus MemorandumSII Prospectus & attotment of Securities Meaning: A pospecs which des not ince complete parculaes of the Quantum ec pace of theses inca ther estab ved before the MR {sue of actual prospects Elling with ROG: Red-herring prospectus shall be filed by the company with the ROC at least 30 cays prior to the opening of the subseription and the offer: Deemed as Actual prospectus: A RHP shall carry the same obligations as applicable wo the actual prospectus. Any changes between a RHP and a - prospectus shall be highlighted as "Variations" in actual prospectus, Issue of Actual Prospectus: Once the offer is closed, the company shall file with the ROC and SEBI actual prospectus. containing details of ii i, total capital ised (Debt + Share Capital), ii, closing price of securities, and ii, any other details not included in RHP Ean S Issue Red Public will place Company will Shares will be Herring the bids. issue prospects allotted based on Prospectus with quantity and the price selected Its intention of price of shares. in bidding Itis intention of giving offer for Process Invitation to shares Its invitation t0 considering it as Offer offer. offer. Criminal Liability for Misstatements (See 34) When prospectus includes any statement which is — ‘© untrue oF misleading in form of context, or ' Where any inclusion or omission of any matter is likely to mislead, E rep) perron who antborses the issue of such prospectus shal be liable u/s 447(ie. Punishment for Frau). ‘The person shall not be criminally liable if he proves that — ) the statement or omission was inmateria, ot 1) he had maronable grands to believe that the statement was true, and he continued fo bebeve upto the time of issue of the prospectus that the statement was true or the inclusion or omission was necessary. lLProspectus & Allotment of Securities ‘Liability when intent to defraud is not proved (Sec 35): Sub-section provides that where a person has subscribed for securities of a ‘company acting on any statement included, of the inclusion or omission of any matte, in the prospectus which is misleading and has sustained any loss ‘or damage as a consequence thereof, the company and every person who- ‘© isa director atthe time of the issue; ‘© has authorised himself to be named and is named in the prospectus as a director: © isa promotes, ‘© has authorised the issue of the prospectus; and © is anexpert referred to in sub-section (5) of section 26, shall, without prejudice to section 36, be liable to pay compensation to every person who hi Ss A petson shall not be liable under sub-section (1) if he proves that- @ consent to become a director was withdrawn before the issue of prospectus; Gi) the prospectus was issued without his knowledge or consent AND on becoming aware ofits issue, he gave a reasonable public notice of it Gi) as regards every misleading statement purported to be made by an expert of contained in what purports to be a copy of or an extract from ‘a report or valuation of an expert, it was a correct and fair representation of the statement, ora correct copy of, ora corect and fir extract from, the report or valuation; and he had reasonable ground to believe and did up to the time ofthe issue of the prospectus believe, that the person making the statement was eompetent to make it and that the said person had given the consent required by sub-section (5) Of section 26 to the issue of the prospectus and had not withdrawn that consent before filing of a copy of the prospectus with the Registrar or, to the defendant's knowledge, before allotment thereunder. iability rent to defraud is Where intent to defraud is proved, every person referred to in sub-section (1) shall be: ‘© personally responsible, © without any limitation of liability, forall or any of the losses or damage that may have been incurred by any person who subscribed to the securities on the basis of such prospectus. Penalty for fratidulently inducing persons to invest money (Sec 36): A person shall be liable for penal action for aud u/s 447 if i. he commits any fraudulent act ie. either knowingly or recklessly makes any statement, promise ‘or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, and ii. He commits such fraudulent aets as above to induce another person to enter into, of to offer to center into ~ 8) any agreement for, or with a view to, acquiting, disposing of, subscribing for, or underwriting, securities; bb) any agreement the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of {©} any agreement for, oF with a view to obtaining credit facilities from a bank or financial sions by Affected P Following action ean be taken by (@ Filea Suit ,or (i) take any other action person of group/association of persons u/s 34,35,836- Class action suit := In the case of classaction suit, the class or the group of people fling the ease need not be present in the court and ean be represented by one petitionerProspectus & Allotment of Securities Ore o-oo eres ee ee eee Anoun ponbl asenhen enemas tale oe een lL prospectus date, or any other period prescribed by SEBI, then amount received under sub-section (1) shall be returned within 15 days from the closure of the ue, & if the amount is not so repaid, the dircetors of the company shall be jointly and severally lable. Refund if minimum subscription not received Ifamount of minimum subscription has not been received within 30 days from Be A company having a share capital making any allotment of shares shall, within 30 days thereafter, file with the ROC a retusn of allotment in Form Penalty for default In case a company fis to rerum the amount to subscribers u/s 393) Fn fling the return of allotment with ROC u/s 39(), it shall be, with every officer in f dealt, lable to penalty Penalty: Rs1,000 pe day of defn bing continua — Or Rs. 10:00 whichever sess @ en > Be Company Issue Company shall Prospectus receive money « eS Sai Shel Receive mi application money in cheque o legal days refund the amount in next 15 days BOD will be liable to pay 15% interest. prsProspectus & Allotment of Securities Compulsory registration of securities before making offer Sub section 1 makes it compulsory for every company making a public offer, o apply for listing of its securities, to recognised stock exchange. ‘Prospectus (o state names of stock exchanges “The prospectus shall state~ (@) thatan application u/s 40(1) bas been made to a recognised stock exchange; And (B) the name of such stock exchange. bank All application monies received shall be kept separately in a bank account of scheduled bank and exelusively used for the following purposes- (1) for adjustment against Allotment (when permission is granted by Stock exchange), oF or repayment of monies to applicants (when company is unable to allot securities for any reason e.g, permission denied by stock exchange). ie. such application money cannot be used for any purpose other than the ‘wo purposes mentioned above. it ting to_waive liance_shal jd: Any condition purporting to require or bind any applicant for securities 10 Waive compliance with any of the requirements of this section shal be void. Penalty for i Penalty for default will be as und For Company- Rs.5,00,000 = Fine = Rs.50,00,000 For every officer in default Jail up to I year And / Or Rs 300,000 Conditions for the payment of commission: (a) the payment of such commission shall be authorized in the ‘company’s articles of association; (b) the commission may be paid out of proceeds of the issue or the profit of the company or both; Rate of Commission & Discl ‘The rate of commission paid or agreed to be paid shall not exceed, in ease of shares, 5% of the price at which the shares are issued or a rate authorised by the articles, whichever is less, and in ease of debentures, shall not exeeed 2.5% of the price at which the debentures are issued, or as specified in the company’s articles, whichever is less ‘The prospectus of the company shall disclose - (@ the name of the underwriters (ithe rate and amount of the commission payable to the underwriter; and (id). the number of securities which isto be underwritten or subscribed by the underwriter absolutely or conditionally ‘No payment of commission: ‘There shall not be paid commission to any underwriter on securities which are not offered to the public for subscription. A copy of the contract for the payment of commission is delivered to the Registrar at the time of delivery of the prospectus for registeation,Prospectus & Allotment of Securities Entitlement to offer by way of Private Placement Subsection I entides a company to offer its securities by way of Prinae Plaement through an offer letter. Conditions for Private Placement Following conditions should be complied with- L.A private placement offer leter shall be IL. The offer or invitation shall not be mad (@) 50 persons, of (©) Such higher no. of persons as may be preseribed. ‘Exclusions from above number; Following persons shall be excluded while computing the number of persons — (Qualified Institutional Buyers GD, Employees to whom the securities have been offered under ESOP u/s 62(1)(b) (@ Ifa company makes an offer to allot or invites subscription, or allots, of enters into an agreement to allot, securities to more than the prescribed number of persons then the same will not qualify as private placement and shall be deemed to be an offer to the publie*. (i In such a case, the company shall have to comply with the provisions of the Companies Act, 2013, the Securities Contract (Regulation) Act, 1956 and the SEBI Act, 1992, Definition of QIB & Private Placement Qualified Institutional Buyer(QIB): means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 209 as amended from time to time. Private Placement: any offer of securities or invitation to subscribe securities by a company which satisfies the following conditions: (Such offer or invitation isto a seleet group of persons; G@) Such offer or invitation is other than by way of public offer; (ii) Such offer or invitation is through issue of a private placement offer letter; Such offer or invitation satisfies other conditions in section 42 of the 2013 Act including the condition thac the offer of invitation is made to not more than 200 persons in the aggregate (excluding QIBs and employees offered securities under ESOP) in a financial year No farther oer shall be made unless under the earlier offeror invitation if any i. the allotment have been completed: oF ii such offeror invitation has been withdrawn or abandoned by the company. Consequences of contravention to section 42 Any offéfwhichl iin contravention 10 this section shall be- @ treated as Plc Offer, and @ all provisions ofthe Companies Act, 2013, the Securities Contract (Regulation) Act, 1956 and the SEIT Act, 1992 shall be applicable ‘The company shall not accept any cash towards subscription of securities. Allotment to be made within 60 days: > The company shall allot the securities within 60 days of receiving the application money. > Ifthe company is not able to allot the securities within the period of 60 days, it shall repay the pplication money to the subseribers within 15 days, If the company fails to repay within 15 days it shall be liable to repay that money with interest at the rate of 12% pa, from the expiry of the GO day. “Monies to be kept in a separate bank account: All monies recived on application shall be kept in a separate bank account in a scheduled bank: All such money shall be utilized by the company only for 4) Adjustment against allotment 4) repayment to the applicants when the allotment could not be made because of any reason, ‘Complete record of private placement + all offers shall be made only to such persons whose names are recorded prior to the invitation, and that such persons shall receive the offer by name, that a complete record of such offers shall be kept by the company, andProspectus & Allotment of Securities [EEN in form PAS 4 within 30 days ‘© complete information about such offer shall be filed with the ROM Of circulation of relevant private placement offer leer, ‘© The compaay shall maintain a complete record of private placement offers in Form PAS-5, No public Advertisement ‘The company sal nove ay mei matting ot atibung chanel or agents to adverit the offer to public at lange After allotment, a Return of Allotment in form PAS-3 containing following details shall be filed with the ROC = i. List of security holders fi, full names of security holders iil, addresses of security holders jv. number of securities allotted ¥._ other televant information prescribed Penal Provisions Ifa company makes an offer or accepts monies in contravention of this seetion; Persons liable ~ Company, Promoters, Direetors Penalty — Amount involved in offer, or Rs, 2 Cr, Whichever is lower And. Company shall refund all monies to subscribers within 30 days of the orcer imposing the penalty Zs 1. Issue offer letter to Investors In form no PAS-3, Within 60 days 1% Tf money not refunded company shall pay dof 12% pa from the end of 60 days, I securities not allotted In 60 days Within 15 days ok esProspectus & Allotment of Securities Meaning of fraude “Fraud” in relation to affairs of a company or anybody comporate, includes: + any act, ment of any fact, + abuse of position committed by any person, ot any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, oF to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wronggal loss; “Wrongful gain” means the gain by unlawful means of property to which the person gaining is not legally entidled; “Wrongful loss” means the loss by unlawful means of property to which the person losing is legally entitled, According to section 447 of the Act, any person who is found to be gulty of fraud, shall be punishable ‘with imprisonment for a teem which shall not be less than six months but which may extend to ten years and shall also be lable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud: Provided thae where the fraud in question involves public interest, the term of imprisonment shall not be less than three years Public offer and private placement Power " eh Poschenee Berard ter rab oanster of securities ete: Document containing offer of securities for sale to be deemed prospectus ‘Matters to be stated in prospectus ‘Variation in terms of contract or objects in prospectus, Offer of sale of shares by certain members of company Public offer of securities to be in dematerialised form Shelf prospectus Red herring prospectus Criminal liability for misstatements in prospectus Civil liability for misstatements in prospectus Punishment for fraudulently inducing persons to invest money ‘Action by affected persons Allotment of securities by company Secusities to be dealt with in Stock ivate placementProspectus & Allotment of Securities [EEE Advertisement giving details of notice of special resolution for verifying the terms of any contract referred to in the prospectus of altering the objects for which prospectus was issued. Information Memorandum Return of Allotment Private Placement Offer Letter Record of Private placement offer to be kept by the company.o Wi iiDeDF™ This document was created with the Win2PDF “print to PDF" printer available at http:/www.win2pdf.com This version of Win2PDF 10 is for evaluation and non-commercial use only. This page will not be added after purchasing Win2PDF. JIwww.win2pdf.com/purchase!