SUBMITTED BY:

AMJAD - 19BC188
GOBINATH - 19BC440
PREETHIKA-19BC369
SAMIKSHA -19BC401

SECTION :N

TUTE GROUP : N69

SUBMITTED TO: SHALINI RAWAL

  Introduction:
⮚ The promoters of a public company will have to take steps to raise the
necessary capital for the company, after having obtained the Certificate of
Incorporation. A public company may invite the public to subscribe to its shares
or debentures.
⮚ Prospectuses are to be issued for this purpose. To issue a prospectus is
very essential for a public company. If the promoters of the company are confident
of raising the required capital privately from their friend or relatives , they need not
issue a prospectus.
⮚ In such a case, a statement in lieu of prospectus must be filed with the
Registrar. A private company is not allowed to issue a prospectus since it cannot
invite the general public to subscribe to its shares and debentures. It is not required
to file a statement in lieu of prospectus.
Definition of Prospectus:

⮚ Section 2(36) defines a prospectus an “any document described as issued

as a prospectus and includes any notice, circular, advertisement or other
document inviting deposits from the public or inviting orders from the public
for the subscription or purchase of any share in, or debentures of, a body
corporate”.
⮚ In simple words, a prospectus may be defined as an invitation to the public
to subscribe to a company’s shares or debentures. By virtue of the Amendment
Act of 1974, any document inviting deposits from the public shall also come
within the definition of prospectus
PROSPECTUS:

⮚  It is the offer that makes the shares and debentures available for subscription
to any one who brings his money and applies in due form, whether the
prospectus was addressed to him on behalf of the company or not.
⮚ The term “subscription of purchase of shares” means taking or
agreeing to take shares for cash. Any document to be called a prospectus must
have the following ingredients :
*There must be an invitation offering to the public;
*The invitation must be or on behalf of the company or in relation to an
intended company;
*The invitation must be to subscribe or purchase. The invitation must relate
to shares or debentures
 Objects of Prospectus

The main objects of a prospectus are as follows :

1. To bring to the notice of public that a new company has been formed.
2. To preserve an authentic record of the terms of allotment on which the public
have been invited to but its shares or debentures.
3. The security that the directors of the company accept responsibility of the
statement in the prospectus
Issue after Incorporation:

Section 55 of the Act permits the issue of prospectus in relation to an intended

company. A prospectus may be issued by or on behalf of the company.
a) by a person interested or engaged in the formation company or
b) through an offer for sale by a person to whom the company has allotted
shares.

 Dating of Prospectus :

A prospectus issued by a company shall be dated and that date shall be taken
as the date of publication of the prospectus (Section 55).
Date of issue of the prospectus may be different from the date of publication.
Contents of a prospectus:

⮚ Address of the registered office of the company.

⮚ Name and address of company secretary, auditors, bankers, underwriters
etc.
⮚  Dates of the opening and closing of the issue.
⮚ Declaration about the issue of allotment letters and refunds within the
prescribed time.
⮚ A statement by the board of directors about the separate bank account
where all monies received out of shares issued are to be transferred.
⮚  Details about underwriting of the issue.
⮚  Consent of directors, auditors, bankers to the issue, expert’s opinion if
any.
⮚  The authority for the issue and the details of the resolution passed
therefore.
⮚ Procedure and time schedule for allotment and issue of securities.
⮚ Capital structure of the company
⮚ Main objects and present business of the company and its location.
⮚ Main object of public offer and terms of the present issue.
⮚ Minimum subscription, amount payable by way of premium, issue of
shares otherwise than on cash.
⮚ Details of directors including their appointment and remuneration.
⮚ Disclosure about sources of promoter’s contribution.
⮚ Particulars relation to management perception of risk factors specific to the
project, gestation period of the project, extent of progress made in the
project and deadlines for completion of the project
 Various Categories of Prospectus

1. Statement in lieu of Prospectus:

⮚ A public company, which does not raise its capital by public issue, need not
issue a prospectus. In such a case a statement in lieu of prospectus must be
filed with the Registrar 3 days before the allotment of shares or debentures is
made.
⮚ It should be dated and signed by each director or proposed director and
should contain the same particulars as are required in case of prospectus
proper
2. Deemed Prospectus:
 Section 25 of the companies Act, 2013 provides that all documents
containing offer of shares or debentures for sale shall be included within the
definition of the term prospectus and shall be deemed as prospectus by
implication of law.

Unless the contrary is proved an allotment of or an agreement to allot shares or

debentures shall be deemed to have been made with a view to the shares or
debentures being offered for sale to the public if it is shown
a. That the offer of the shares or debentures of or any of them for sale to the
public was made within 6 month after the allotment or agreement to allot; or
b. That at the date when the offer was made the whole consideration to be
received by the company in respect of the shares or debentures had not been
received by it.
All enactments and rules of law as to the contents of prospectus shall apply to
deemed prospectus.
 3. Abridged Prospectus [Sec. 2(1)]:

⮚  Abridged prospectus means a memorandum containing such salient features

of a prospectus as may be specified by the SEBI by making regulations in this
behalf.
⮚ No form of application for the purchase of any of the securities of a
company shall be issued unless such form is accompanied by an abridged
prospectus.
⮚ A copy of the prospectus shall, on a request being made by any person
before the closing of the subscription list and the offer, be furnished to him.
4.Shelf Prospectus:

⮚ Any class or classes of companies, as the Securities and Exchange Board

may provide by regulations in this behalf, may file a shelf prospectus with
the Registrar at the stage of the first offer of securities included therein
which shall indicate a period not exceeding one year as the period of
validity of such prospectus which shall commence from the date of opening
of the first offer of securities under that prospectus, and in respect of a
second or subsequent offer of such securities issued during the period of
validity of that prospectus, no further prospectus is required.
⮚ A company filing a shelf prospectus shall be required to file an
information memorandum containing all material facts relating to new
charges created, changes in the financial position of the company as have
occurred between the first offer of securities or
⮚ The previous offer of securities and the succeeding offer of securities
and such other changes as may be prescribed, with the Registrar within
the prescribed time, prior to the issue of a second or subsequent offer of
securities under the shelf prospectus
⮚ Provided that where a company or any other person has received
applications for the allotment of securities along with advance payments of
subscription before the making of any such change, the company or other person
shall intimate the changes to such applicants and if they express a desire to
withdraw their application, the company or other person shall refund all the
monies received as subscription within fifteen days thereof.

3. Where an information memorandum then filed, every time an offer of

securities thus made under sub-section (2), such memorandum together with the
shelf prospectus shall deemed as prospectus.
5. Red Herring Prospectus:
1. A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus.
2. A company proposing to issue a red herring prospectus under sub-section
shall file it with the Registrar at least three days prior to the opening of the
subscription list and the offer.
3. A red herring prospectus shall carry the same obligations as are applicable to
a prospectus and any variation between the red herring prospectus and a
prospectus shall thus highlighted as variations in the prospectus.
4. Upon the closing of the offer of securities under this section, the prospectus
stating therein the total capital raised, whether by way of debt or share capital,
and the closing price of the securities and any other details as not included in
the red herring prospectus shall then filed with the Registrar and the
Securities and Exchange Board.
   LIABILITY FOR MIS-STATEMENT IN THE
PROSPECTUS:

⮚ Those who issue prospectus holding out to the public the great
advantages which will accrue to persons who will take shares in a proposed
undertaking, and inviting the to take shares on the faith of the
representations therein contained, are bound to state everything with
strict and scrupulous accuracy and not only to abstain from stating as
fact that which is not so, but to omit no one fact within their
knowledge, the existence of which might in any degree affect the nature or
extent and quality of the privileges and advantages which the prospectus
holds as inducement to take shares
 

Liability for mis-statement in the prospectus:

1. Civil liability against the company to rescind the contract to claim the
damages against the directors, promoters and experts compensation
damages under general law
2. Criminal liability
 
CIVIL LIABILITY FOR MIS-STATEMENTS IN
PROSPECTUS:
1. Where a person has subscribed for securities of a company acting on any
statement included, or the inclusion or omission of any matter, in the prospectus
which is misleading and has sustained any loss or damage as a consequence
thereof, the company and every person who—
✔ is a director of the company at the time of the issue of the prospectus;
✔ has authorised himself to be named and is named in the prospectus as a
director of the company, or has agreed to become such director, either
immediately or after an interval of time;
✔  is a promoter of the company;
✔ has authorised the issue of the prospectus; and . is an expert referred to in sub-
section (5) of section 26, shall, without prejudice to any punishment to which
any person may be liable under section 36, be liable to pay compensation to
every person who has sustained such loss or damage.
CRIMINAL LIABILITY FOR MISSTATEMENTS
IN PROSPECTUS:
⮚ Where a prospectus, issued, circulated or distributed under this Chapter,
includes any statement which is untrue or misleading in form or context in
which it is included or where any inclusion or omission of any matter is likely
to mislead, every person who authorizes the issue of such prospectus shall be
liable under section 447.
⮚ Imprisonment for a term which may not be less than six months but
which may extend to 10 years; or Amount not less than the amount involved in
fraud but it may extend to three times the amount of fraud; or both
imprisonment and fine.
⮚ Provided that nothing in this section shall apply to a person if he
proves that such statement or omission was immaterial or that he had
reasonable grounds to believe, and did up to the time of issue of the prospectus
believe, that the statement was true or the inclusion or omission was necessary
  REMEDIES AGAINST THE COMPANY:
1.) Recession of the contract:
⮚ The right to rescind the contract is available if he proves the following :
Prospectus was issued by or on behalf of the company. Statement must be
untrue.
⮚ Statement must be material misrepresentation.The misrepresentation must
have induced the shareholders to rely on the statement in applying for shares .
Misrepresentation must be of the facts and not of law( expression of
opinion).That he has taken action promptly to rescind the contract.

2.) Right of action for damages for deceit:

⮚ This remedy is available even after the company has gone into liquidation
only if following conditions are satisfied:
⮚ Person who issued the prospectus knew that statement was false.That
person was authorised to issue the prospectus. That the allottee has suffered the
loss due to misrepresentation.
 REMEDIES AGAINST THE DIRECTORS,
PROMOTERS AND EXPERTS:
1.) Compensation: The liability consists in paying damages by way of
compensation to the aggrieved party. The compensation payable will be the
difference between the price paid for shares and their value at the date they are
allotted to the subscriber.
2.) Damages for non compliance with section 26: The remedy is to recover
damages and not of recession.
3.) Damages under General Law: Plaintiff has to establish the following:
There was a fraudulent misstatement. False representation related to material
facts.
 MINIMUM SUBSCRIPTION ( SECTION- 39):
When a public company invites the public to subscribe for its shares, it
cannot allot those shares until the minimum amount stated in the prospectus has
been subscribed. This amount stated in the prospectus is known as the
minimum subscription.
⮚ The amount payable on application on every security shall not be less
than five percent of the nominal amount of security or such other percentage
or amount as may be specified.
⮚ If the stated minimum amount has not been subscribed and the sum
payable on application is not received within a period of thirty days from the date
of issue of the prospectus, all amount received shall be returned within prescribed
time and in prescribed manner.
⮚ In case of any default, the company and its officer who is in default shall
be liable to a penalty, for each default, of one thousand rupees for each day
during which such default continues or one lakh rupees, whichever is less.
 BOOK BUILDING DEFINITION:
“Book Building is a process by which the issuer Company before filing the
Prospectus builds up and ascertains the Demand for the securities being issued and
assesses the price at which such securities may be issued and ultimately
determines the quantum of securities to be SEBI’

TYPES OF BOOK-BUILDING:
⮚ The Open Book-Building: In this system, there is an online display of the
demand and the bids during the bidding. This facility is available on both
NSE and BSE. This enables the investors to know the movement and
quantum of bids during the period the bids are open.
⮚ The Closed Book-Building: Under this system the book is not made public
and the investors bid without having any details of the bids made by the other
bidders.
BOOK BUILDING PROCESS
The following are the steps involved in book
building:
⮚ Appointment of book runner.
⮚ Advertisements.
⮚ Members bid.
⮚ Issue of Red herring Prospectus.
⮚ Issue of Draft Prospectus to institutional buyers.
⮚ Analysis of bids.
⮚ Firming cf underwriting contracts.
⮚ Submission of prospectus to the ROC (Registrar of Companies)
⮚ Collection of application forms with money.
⮚ Allotment of securities.
⮚ The company has to issue a Red herring Prospectus.
 GREEN SHOE OPTION:
The  green shoe option is an over-allotment option.
In the context of an initial public offering (IPO), it is a provision in an underwriting
agreement that grants the underwriter the right to sell investors more shares than
initially planned by the issuer if the demand for a security issue proves higher than
expected.
THANK YOU…