SPCC 3 Marks Each

• Companies doing business are required to provide the following additional details:

1. Auditor's report on the company's profit and loss account, fixed balance sheet.
2. Profit-loss details for the previous five years before the advertisement was issued, secondary branch reports.
3. Information about the business in which the securities obtained are intended to be used directly or indirectly.

A person, who knowingly makes a careless statement or makes a false promise, conceals important rights, dishonestly conceals and thus entices to withhold money in a company share or debenture may be liable for criminal treason or fraud and may be punished with fine / imprisonment or both.

• Regarding project:

A. The idea of promoters and risk factors in it.
B. Waiting period for the project.
C. The development in the project.
D. Time for completion of the project.
E. Information regarding any pending suit, legal proceedings or filing of a suit or legal proceeding against a promoter by Government Department during, of past 5 years from the date of publication of the prospectus.

If a person has made any kind of investment in the company by misleading from the advertisement issued by the company and as a result he incurs loss or loss, he can take civil action against the company for compensation and the company is bound to compensate him. This is called liability.

• "The minimum amount that a company buys from the public is called the minimum payment so that the company can start a business as per its plan."
• The Companies Act does not specify what the minimum payment amount should be.
• But according to SEBI guidelines, at least 90% of the issued shares should be recovered if the company has not entered into a public offering undertaking.
• If the minimum payment stated in the advertisement is not received, the shares cannot be allotted by the company.

• Before the Secretary registers with the Registrar:-

1. To make sure that the date is written in the advertisement.
2. It is the duty of the company to check whether all the details and reports are included as per the rules.

• It is a criminal offense to intentionally misrepresent an advertisement and cause financial harm to the public.
• This is the type of liability in which company officials can be fined or imprisoned or both.
• The purpose of such misrepresentation is to entice individuals to withhold money fraudulently or fraudulently.
• For which strict punishment is provided in the law.

The following characteristics of a prospectus can be traced:
1. Prospectus is an invitation published by a company.
2. The public is given invitation to purchase securities through the prospectus.
3. Prospectus should be in the nature of notice, circular or public advertisement.
4. Prospectus should be in written form.

• If the share guarantee agreement is not made, the following problems arise:
• When a public company invites the public to buy shares or debentures, the reputation of the company is jeopardized if the newly formed company does not receive the minimum payment amount.
• Also the chances of future success are hindered.
• A negative situation arises in the stock market regarding the company.

• The significance of the minimum payment is as follows:
• To protect the interest of investors, a minimum provision has been made in the Companies Act.
• Shares or other securities can be allotted only if the minimum payment amount is received.
• Some dishonest or inexperienced managers set up a company with insufficient capital.
• As a result, the business cannot be run properly and the money invested by the public investors who invest in it has to be lost.
• Hence the provision of minimum payment is mandatory in law.
• According to the Companies Act, 2013, if the minimum payment amount is not received within 30 days from the date of issue of the advertisement or within the period specified by SEBI, the amount has to be refunded as directed by SEBI.
• If this rule is violated, the responsible officials will be punished.
• This has to be registered with the Registrar of Companies when the shares are allotted.

• Meaning: - Advertisement in simple language means advertisement. An advertisement is a document that invites the public to raise money through share capital or debentures or other securities.
• Definition: "Any document that invites the public to purchase its shares or debentures or other securities, whether presented or issued as an advertisement, including a notice, circular, advertisement or other type of document."

As per the Company Act a public company has to collect the amount of minimum Subscription within 30 days from the date of issuing prospectus. If the amount of minimum subscription is not received in prescribed time limit, then such amotrrrtls required to be returned as per the directions of the SEBI. In such circumstances -the promoters can not start business. Thus, promoters enters in to contract with under writers toênsure the amount of minimum Subscription. As per share underwriting contract brokers in consideration of the commission, give guarantee to the company that in case the securities issued for the public at large are not fully purchased by the public they would purchase the remaining shares and would make payment thereof. Thus, due to underwriting contract there is no uncertainty for a company to collect capital. Therefore underwriting contract are considered as blessings for the company.

As per the Company Act a public company has to collect the amount of minimum Subscription within 30 days from the date of issuing prospectus. If the amount of minimum subscription is not received in prescribed time limit, then such amotrrrtls required to be returned as per the directions of the SEBI. In such circumstances -the promoters can not start business. Thus, promoters enters in to contract with under writers toênsure the amount of minimum Subscription. As per share underwriting contract brokers in consideration of the commission, give guarantee to the company that in case the securities issued for the public at large are not fully purchased by the public they would purchase the remaining shares and would make payment thereof. Thus, due to underwriting contract there is no uncertainty for a company to collect capital. Therefore underwriting contract are considered as blessings for the company.

A private company does not require to get the certificate of commencement of Business like public limited company. It can start its business after receiving the certificate of incorporation. As such the provision of issuing the prospectus and that of minimum Subscription is not applicable to a private company. A private company cannot invite the public to purchase shares or debentures by issufng a prospectus. The Companies Act has restricted the private company to issue the prospectus and the private company should mention about this in its Articles of Association.

A private company does not require to get the certificate of commencement of Business like public limited company. It can start its business after receiving the certificate of incorporation. As such the provision of issuing the prospectus and that of minimum Subscription is not applicable to a private company. A private company cannot invite the public to purchase shares or debentures by issufng a prospectus. The Companies Act has restricted the private company to issue the prospectus and the private company should mention about this in its Articles of Association.

The investors purchase the shares of the company on the basis of the details given in the prospectus. If the details in the prospectus are not clear and ambiguous or misleading, the investors have to suffer loss. In order to avoid this the prospectus should not lack in clarity. It should be so transparent that one can see the picture of the company through it. If the prospectus is not transparent the directors are personally responsible for it.

It is compulsory for the company to issue the prospectus for raising capital by issuing the shares and debentures. It gives information about the capital of the company, name, aim, field of work, share underwriting, primary expenditure officers, future projects etc. If the existing company wants to raise additional capital, it should enclose along with the prospectus the profit and loss account, Balance sheet, auditors reports etc. If it contains false or misleading information and thereby if any party suffers loss he can file a sure against company for indemnity A responsible officer is liable to punishment for this. It is for this the prospectus is a document presenting a relationship of trust for the public.

Advantages of Share underwriting contract : Following are the advantages of share underwriting contract:
(1) Removes uncertainty : After having entered in to underwriting contract there is no uncertainty among the promoters of the company to get the amount of Minimum Subscription.
(2) Appropriate advice The under writer Brokers being experts of share market give appropriate advice to the company. This leads to increase in the confidence of investors.
(3) Safety of Investor’s money: Before taking liability the underwriter Brokers make necessary investigation about the condition and future of the company and thereafter enter in to underwriter contract. Therefore the investors are confident about the safety of their money.
(4) Advantage of goodwill of underwriter Brokers : When the company makes underwriting contract with reputed underwriter Brokers. Company receives benefit of their reputation. Investors are attracted to invest their money reading the names of reputed underwriter brokers in the prospectus.
(5) Reduce advertisement expenditure : If the company does not enter in to the contract of share underwriting, it will have to give more advertisement in the Newspapers and television which is very costly, As the share underwriter takes the responsibility as per the contract, there is less expenditure for advertisement.

As per the guidelines of SEBI, company has to collect Minimum amount of share in order to start the business. Sometimes newly established companies are uncertain about the minimum subscription. So, they enter in to underwriting contract with underwriting Broker.
In the absence of underwriting contract the problems faced by the company are as under:
(i) If the company fails to get minimum SubscripTiOn then the company is not granted certificate of commencement of business.
(ii) Company has to refund the amount of share applications.
(lii) This creates adverse effect on the prestige of company and they loose the confidence of their investors.
Thus, to avoid such risk, newly established company enters in to share underwriting contract.

Importance of Minimum Subscription:
(1) For securing interest of Investor : In order to secure the interest of the investors the provisions of Minimum Subscription is made in the Companies Act.
(2) For distribution of Securities : A company can distribute its securities only when the amount of minimum subscription is received.
(3) Save the investors from the loss : Some dishonest or inexperienced directors establish a company with insufficient capital. As a resultant effect business can not run in a systematic manner and the investors have to lose their invested money.
(4) Guidelines of SEBI : To receive minimum amount on share time limit is prescribed by the SEBI and if a company is not able to received minimum Subscription in that particular time limit then such amount is required to be returned as per the directions of the SEBI.
(5) Liability of officers in case of violation of Law: The concerned officers are liable to pay fine on violation of provisions of Companies Act. So, the investors feel safety of their money.
(6) Registered with company Registrar : The hares allotted to the investors are registered with the registrar of Companies. So the problemof fack allotment does not arise.
(7) Increase the trust of investors : Minimum Subscription makes sure that the company is going to establish. Thus, investors feel trust to invest their money in the company.

Additional information of companies having business in existence : Following are the information:
(a) Profit-Loss statement of the company, Final Balance-sheet, report of auditor regarding it.
(b) Profit-Loss information of past five years before publication of prospectus, Reports of Ancillary Branch
(c) Information regarding the business in which direct or indirect use of obtained securities is to be utilized.

Liability for the Breach of Trust and Cheating : If any person knowingly makes careless statements or false promise, conceals material facts, dishonestly hides something and thereby attracts others to invest in the shares or debenture of a company he can be held liable for the offences of criminal Breach of Trust or cheating and be punished with imprisonment or fine or both.

Prospectus is an important document inviting public at large to make investment in a company. As per the provision of the Companies Act 2013 the matters regarding the project to be included in the prospectus are as follows:
(i) The idea of promoters and risk factors in it.
(ii) Waiting period for the project.
(iii) The development in the project.
(iv) Time for completion of the project.
(v) Information regarding any pending suit, legal proceedings, or filling of a suit or legal proceeding against a promoter by government Department during 5 years from the date of publication of the prospectus.

Civil liability : If any person who has invested in a company relying upon the published prospectus of a company sustains loss, he may initiate civil proceedings against the company for getting compensation for his loss and the company is liable to pay amount of damages to him. This is called civil liability. A person responsible for this fraudulent activity is liable to punishment. In short, civil liability means, responsibility to compensate the financial loss, due to misrepresentation in the prospectus. Following persons are responsible to compensate the same:
(i) The persons who were directors of the company at the time when prospectus was published.
(ii) The directors who have consented to put their names in the prospectus.
(iii) The promoters of the company.
(iv) The officer authorized by the company to publish the prospectus.
(v) Person whose name is mentioned for giving opinion as an expert in the prospectus.

Meaning of Minimum Subscription : The amount of Minimum subscription to be obtained by each company is not mentioned in the Companies Act. Thus, the directors and other experts decide the amount of Minimum Subscription by sitting together.
Meaning : The minimum amount of share purchase required in order to start proper business as per its wish is called Minimum Subscription.

Verification before Registration : Before registration of prospectus to the Registrar the secretary has to (i) Verify whether date is written or not in the prospectus and (ii) Verify whether all the information and reports are included as per the Companies Act or not.

Criminal liability : To give deliberate misrepresentation in the prospectus and cause financial loss is considered as criminal offence. In this type of liability the officers of the company can be punished with imprisonment or fine or both. The very purpose of making misleading statement is to fraudulently tempt to invest or attempt to tempt the person to invest in a company. For such incidents strict provisions for punishment are made under law.
(A) Liability of other offences regarding information of the prospectus:
(1) If the prospectus is not of the legal character or the necessary information are not provided there in, the Director or authorized person can be held responsible.
(2) Prospectus can be published only after getting it registered before the Registrar. There should be date and signature of authorized persons in the prospectus. If the above formalities are not complied with the person responsible for the publication of prospectus may be punished with fine.
(3) If the provisions regarding the statements of experts are not complied with the person who has published the prospectus is liable for fine.
(B) Liability for the Breach of Trust and Cheating : If any person knowingly makes careless statements or false promise, conceals material facts, dishonestly hides something and thereby attracts others to invest in the shares or debenture of a company he can be held liable for the offences of criminal Breach of Trust or cheating and be punished with imprisonment or fine or both.

Characteristics of Prospectus : Following are the characteristics of prospectus:
(1) Public document: Prospectus is a public document issued by the company. Public can go through the information mentioned in it and take decision whether to invest in company or not.
(2) Public invitation for subscription : Through prospectus a company invites public at large to purchase or to subscribe the shares, debenture or other securities.
(3) Nature: Prospectus is public document giving invitation to the public to purchase securities of a company. This document should be in nature of notice, circular or public advertisement.
(4) Written form: Prospectus issued by the company should be in written form, it means oral invitation is not considered as prospectus.

Meaning and Definition of Prospectus : In simple language prospectus means advertisement. Prospectus is an invitation given by a company through a document to public at large to purchase its share capital, debenture or other securities in order to raise capital.
As per Company Act a private company can not invite public to purchase its shares. Therefore the provision of issuing prospectus is not applicable to it.
Definition : Prospectus means any document described or issued as 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.
In short, the circular issued by the promoters of a company after incorporation of the company in order to attract to purchase its shares or debentures to the public is known as prospectus. In which Red herring prospectus and shelf prospectus are included.

• The meaning and definition of advertisement is as follows:
• Meaning: -Advertising in simple language means advertisement. An advertisement is a document that invites the public to raise money through share capital or debentures or other securities.
• Definition: "Any document issued by the company inviting the public to purchase its shares or debentures or other securities which is presented or issued as an advertisement including notice, circular, advertisement or other type of document."
• Thus, an invitation issued by the founders of a company after its inception to attract the public to purchase shares or debentures of the company is called an advertisement.
• These include Red Herring Prospectus and Shelf Prospectus.

• By publication of prospectus the public company invites the public at large to purchase its securities.
• But instead of inviting public for purchasing prospectus such company may make private placement for the Guarantee Subscription.
• As per the Companies Act ‘Private placement means company makes an offer to allot securities to definite group of person to purchase securities.’
• Maximum 50 persons or such number of persons as fixed by the SEBI can be invited for the Minimum Subscription over and above institutional purchasers and employees qualified under the Employees Stock Option Scheme.