Prospectus Public Offer Private placement A public company

Prospectus

Public Offer & Private placement • A public company may issue securities : - to public through • A private company may issue securities : - by way of rights issue or bonus issue prospectus (referred as public offer) - through private placement - convert debentures/loan - through private into shares placement http: //www. caclubindia. com/articles/issue-of - through rights issue or securities-by-private-companies-undercompanies-act-20966. asp#. VORCri 58 sr. U bonus issue in accordance with this act and SEBI

Meaning : Prospectus Any document described or issued as a prospectus and includes: - a red herring prospectus or - shelf prospectus or - any notice, circular, advertisement or - other document inviting offers from the public for the subscription or - purchase of any securities of a body corporate.

Considerations : • Prospectus to be in writing • Invitation to Public • How many persons constitute public ? • Dating of Prospectus • Signing of Prospectus - by the proposed directors/agents authorised - by the existing directors/agents authorised

The ‘Golden Rule’ : Prospectus • The ‘Golden Rule’ as to framing of prospectus - disclosure of information - so as investor can look into soundness of the company’s venture - purpose of raising capital/project proposed - financial performance (last 5 years) - perception towards risk factors • Matters to be stated/Reports to be set out

Types: http: //www. thehindubusinessline. com/todays-paper/tp-investmentworld/whats-red-herringprospectus/article 2206195. ece (i) Red herring prospectus (ii) Shelf prospectus Statement in lieu of prospectus: Where a public company does not invite public to subscribe for its shares, but arranges to get money from private sources, it need not issue a prospectus to the public. (submit in 3 days before allotment)

(i) Red Herring Prospectus http: //www. business-standard. com/article/companies/info-edge-ipo-sold-50 -times-106110301095_1. html “Red herring prospectus" means a prospectus which does not include complete particulars of the quantum or price of the securities included therein. A company : - May issue prior to the issue of a prospectus. - shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer. Also 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 be highlighted as variations in the prospectus.

(ii) Shelf Prospectus http: //www. corporate-cases. com/2012/07/shelf-prospectus-meaning. html It means a prospectus issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus. - In Companies Act, 1956, only Public Financial Institutions, Public sector Banks or Scheduled Banks with main object as “financing” were allowed to issue Shelf Prospectus - The 2013 Act extends the facility of shelf prospectus by enabling SEBI to prescribe the classes of companies that may file a shelf prospectus. Deemed prospectus

• Abridge prospectus • As per Section 33 of the Companies Act, 2013, all companies approaching the capitals markets for Initial Public Offerings (IPO) are required to issue an abridged prospectus along with the application form. • ABRIDGED PROSPECTUS According to section 2(1) of the Act “abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf. • Deemed prospectus • Statement in lieu of prospectus

Contents : Prospectus As per The Companies Act, 2013 (Sec. 26) (i) Section 26: Matters to be stated in prospectus (ii) Money raised through a prospectus cannot be used for dealing in equity shares of another company. (iii) Section 27: Variation in terms of Contract or Objects in Prospectus (If a company changes terms of the prospectus or objects for which money is raised, it shall provide dissenting shareholders an exit opportunity. )

A prospectus may be issued : - By or behalf of a public company either with reference to its formation or subsequently, or - by or on behalf of any person who is or has been engaged or interested in the formation of a public company. http: //www. chittorgarh. com/ipo/monte_carlo_ipo/437/

MATTERS TO BE STATED IN PROSPECTUS (SECTION 26): Information in Prospectus: i) Names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed; ii) Dates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time; iii) a statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilised and unutilised monies out of the previous issue in the prescribed manner; iv) Details about underwriting of the issue; v) Consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of such other persons, as may be prescribed; vi) The authority for the issue and the details of the resolution passed there for;

vii) Procedure and time schedule for allotment and issue of securities; viii) capital structure of the company in the prescribed manner; ix) main objects of public offer, terms of the present issue and such other particulars as may be prescribed; x) main objects and present business of the company and its location, schedule of implementation of the project; xi) particulars relating to— - management perception of risk factors specific to the project; - gestation period of the project; - extent of progress made in the project; - deadlines for completion of the project; and - any litigation or legal action pending or taken by a Government Department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;

xii) minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash; xiii) details of directors including their appointments and remuneration, and such particulars of the nature and extent of their interests in the company as may be prescribed; and xiv) Disclosures in such manner as may be prescribed about sources of promoter’s contribution.

Reports with Prospectus: Every prospectus shall set out following reports for the purpose of financial information: i) Reports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed; ii) Reports relating to profits and losses for each of the five financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed. Where company has not completed five financial years than such report for all financial years is required. iii) Reports made in the prescribed manner by the auditors upon the profits and losses of the business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus. Where company has not completed five financial years than such report for all financial years is required. iv) Reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly.

Declaration of Compliance: Every prospectus shall make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.

Other matters in Prospectus Clause (d) of Sub – section (1) of section 26 give unlimited power to central government to list other matters and set out other reports to be included in a prospectus. i) Delivery of Prospectus with Registrar: ii) A copy of prospectus shall be delivered to the Registrar for registration signed by every person who is named as a director or proposed director of the company or by his duly authorised attorney on or before the date of its publication and only then it shall be issued by or on behalf of a company or in relation to an intended company. Statement of an Expert: i) A statement made by an expert shall be included only if expert is or was engaged or interested in the formation or promotion or management of the company and has given his written consent to the issue of the prospectus. Such consent of expert must not be withdrawn by his before the delivery of prospectus to the Registrar for registration and a statement to that effect shall be included in the prospectus. ii) Every prospectus issued shall state that a copy has been delivered to the Registrar and specify attached documents. The registrar shall not register a prospectus unless all requirements has been complied with and the prospectus is accompanied by the consent in writing of all the person named in the prospectus. iii) Prospectus shall not be valid if it is issued more than ninety days after the date on which a copy thereof delivered to the Registrar.

Caution: If a prospectus is issued in contravention of the provisions of section 26, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

Misstatements in Prospectus/ Consequences In case of misstatement of a material fact, there may arise : (I) Civil Liability (II) Criminal Liability

(I) Civil Liability ( induced to subscribe for shares on faith of misleading prospectus) A. Remedies against the company 1. Rescission of the contract Conditions for rescission : (i) statement must be a material misrepresentation of fact (differs from opinion) e. g wrong profits, directors (ii) statement must have induced the shareholder to take the shares (iii) statement must be untrue (e. g. dividend declared) (iv) the deceived shareholder is an allottee and he must have relied on the statement in the prospectus (v) the omission of material fact must be misleading before rescission is granted (approval for racing land) (vi) proceedings must start as soon as the allottee comes to know. 2. Damages for deceit

B. Remedies against the Directors, promoters, Experts The persons liable are : - directors - authorised as directors in prospectus - promoters - persons authorised to issue prospectus

1. Liability for damages for misstatement in prospectus Defences of Directors, promoters, etc. a. Withdrawal of consent b. Absence of consent (public notice reqd. ) c. Ignorance of untrue statement (public notice) d. Reasonable ground for belief (resignation of any director ) e. Statement of expert Right of Contribution

2. Liability for damages for non-compliance with sec. 26 (matters to be reported) 3. Liability under general law - deceived can drag all to the court for fraud - fraud is : statement should be made knowingly, without belief in its truth, recklessly

(II) Criminal Liability ( prospectus containing untrue statement) A. Punishment for fraud (Sec 447) The persons who is guilty of fraud is punishable with: - imprisonment for a term which shall not be less than 6 months which may extend to 10 years - liable to which shall not be less than the amount involved in fraud and may extend to 3 times the amount involved in the fraud. - If fraud involves public interest, the term of imprisonment shall not be less than 5 years. What is fraud? ? ? See 2015 edition of N. D. Kapoor Page 77

(B) Punishment for false statement If any return, report, certificate, financial statement, prospectus, statement or other document, any person makes a statement : - which is false in material particulars, knowing to be false or - which omits any material fact, knowing it to be material, he shall be liable under sec. 447

(C) Punishment for fraudulently inducing persons to invest money Any person either knowingly or recklessly makes any statement, promise or forecast which is false, deceiving or misleading or deliberately conceals any material facts to induce another person to enter into or to offer to enter into: - any agreement with a view to acquire, dispose or subscribe for or underwriting securities; or - any agreement , the purpose of which is to secure a profit to any of the parties from the yield of securities or reference to fluctuation in value of securities; or - any agreement for obtaining credit facilities from any bank or financial institution he shall be liable under sec. 447

Penalty under Section 34 and 36 (New Companies Act) • Section 34, Penalty for Untrue Statement in prospectus: • Every person is punishable with imprisonment upto 2 Years or with fine upto Rs. 5, 000/- or both • Issuing application which is not accompanied with memorandum containing salient features, fine may extent to Rs. 50, 000/ • Section 36, penalty for fraudulently inducing persons to invest money: • imprisonment upto 5 Years or with fine upto Rs. 10, 000/- or both