SPCC 5 Marks Each

1. Introduction: There is a limitations of capital in soleprietorship and partnership firm. To remove this limitation, company form came in to existence. Company collects huge capital from public through shares and securities. Before investing capital in such companies, minute investigation is done on the safety of capital and economic benefits by public. In order to provide necessary information of a company to the public at large, the company issues a document which is known as prospectus. The investors are attracted to invest in the company if they are satisfied with information presented in the prospectus.
2. 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.
(A) Red herring prospectus : In Book building method, this type of prospectus is used for public offering. It includes all the information except the price of share and the number of shares being offered. This has to be registered with registrar prior to the opening of the subscription.
(B) Shelf Prospectus : This prospectus is for a company offering wide range of securities in a year. Due to that a company is not required to file a new prospectus every time. This facility is available to the public sector banks and public financial institutions.
3. 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.
4. Conclusion : Prospectus should be in written form or printed. It can be in nature of notice circular or public advertisement. But in all forms it should be a document inviting public at large to subscribe or purchase of securities of the company.

• The significance/Importance of the prospectus can be more understood from the following points:

1. In the prospectus the information about the name of the company, the kind of share capital, the working area of company, future plans are given.
2. Information regarding main officers of a company are provided in the prospectus.
3. The purpose of this document is to inform the public at large. There should not be any misrepresentation or misleading information in it as the same amounts to breach of trust on the investors who have relied upon the company. Special provisions.
4. The officers who have given such false, misleading statement or information in the prospectus of a company are held liable.
5. The presentation of true financial situation of a company in its prospectus gives idea of reality to the investor.
6. In the prospectus there is a mention about the possible risks of a project of a company. As a resultant effect investor can take appropriate decision.

• Therefore it is said that Prospectus should be unambiguous and clear as well as transparent like water.

• A public company invites the public to buy shares or debentures.
• Then the reputation of the company is endangered if the newly established company does not get the amount equal to the minimum payment.
• Also the chances of future success are hindered.
• A negative situation arises in the stock market regarding the company.
• To avoid this risk, the newly formed company enters into warranty agreements with brokers or intermediaries.
• In which such brokers assure the company that if the minimum payment is not received, the contracting brokers will buy the security of the remaining amount.
• A warranty agreement is an agreement between a companies and a third party that guarantees the company in exchange for a broker commission that if the public does not fully purchase the securities, it will buy the rest of the securities and pay for them.
• The commission paid for securities purchased by guaranteed brokers in this way is called guarantee commission.

• Responsibility for misrepresentation in the advertisement is as follows:

• An advertisement is an important document inviting the public to invest in shares or debentures of a company, in which case misrepresentation, fraudulent advertisements or exaggerated statements are made by the authorized officials of the company.
• Misrepresentation means:-

1. The statement made in respect of the details of the advertisement is misleading.
2. The required details are not given in the advertisement with the intention of misleading the reader.
3. Tried to mislead the public by using ambiguous words in the advertisement.

• Thus, as mentioned above, if misleading, exaggerated representations are made in the advertisement, the liability of the company arises.

• Advantages of Share underwriting Contract:

1. After having entered into under writing contract, there is no uncertainty among the promoters of the company to collect capital.
2. The underwriter Brokers, being experts of Share market give appropriate advice to the company and hence there is no risk for the investors.
3. Before taking liability, the Underwriter Brokers make necessary investigation about the condition and future of the company and thereafter enter into Under writer Contract. Therefore, the investors are confident about the safety of their money.
4. The company also gets advantage of goodwill of underwriter Brokers. Because of the names of reputed underwriter Brokers the investors are attracted to invest in the company.

1. To arrange the meeting of a committee which is assigned the work to prepare the prospectus by the directors, to prepare minutes of such meeting, to provide all administrative help to this committee. Sometimes this work is assigned to Solicitor. When such work is assigned to the solicitor, the secretary should provide all help by remaining in contact with them.
2. To call meeting of the Board of Directors after preparation of the draft of Prospectus for obtaining its approval and to provide all information about the provisions of the Companies Act.
3. To get the prospectus printed and to send a copy thereof to the Registrar of Companies for registration after preparation and approval of the prospectus by the Board of Directors in a meeting.
4. Before registration of prospectus,
(a) it should be verified whether date is written or not
(b) it is the duty of the secretary to verify whether all the information and reports are included as per the Companies Act of not.
5. It is also the duty of the secretary to send a copy of the prospectus to the Directors whose names are mentioned in the prospectus.
6. If the names of the Experts are to be printed in the prospectus, their written consent is required to be obtained.
7. Written consent of the persons should be taken, whose names are mentioned as Auditor of Company. Legal Advisor, Solicitor and Banker in the Prospectus.
8. The applications cannot be published for shares and debentures. However, with the Mini Prospectus application forms can be attached. Therefore, arrangement should be made to print application forms along with Mini Prospectus.
9. To make arrangement for dispatching the Mini Prospectus and application forms to the Guarantee Brokers with whom the arrangement is made.
10. The amount of the shares received has to be deposited in a separate account of a scheduled bank, such account should be opened.
11. The arrangement should be made to give proper advertisement in various newspapers for opening of subscription of shares.
12. Arrangement should be made to register the shares which are published in the Share Market.
13. Secretary has to see that after registration of Prospectus, the same is published within 90 days.

• The prospectus is an important document giving invitation to the public to make investment in the

Shares or debentures of a company. In case of any misrepresentation, fraudulent advertisement or exaggerated
Statements made in the prospectus, the authorized officials of the company are held responsible.

• Misrepresentation means:

1. The statements made with reference to the contents of the prospectus is misleading.
2. In order to mislead the reader necessary information is not provided in the prospectus.
3. By using ambiguous words in the prospectus, an attempt is made to mislead the public.

• Thus, for such misleading or exaggerated presentation made in the prospectus, the liability of the company arises. Such liability may be of two types: (1) Civil Liability, (2) Criminal Liability.
• 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 give him the damages (compensation for loss). This is called Civil Liability. Thus, due to misrepresentation made in the prospectus, if anyone sustains financial loss, the following persons are liable to compensate the same :

1. The persons who were directors of the company at the time when prospectus was published.
2. The directors who have consented to put their names in the prospectus.
3. The promoters of the company.
4. The officer authorized by the company to publish the prospectus.
5. Person whose name is mentioned for giving opinion as an expert in the prospectus.

• Criminal Liability: To give deliberate misrepresentation in the prospects 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 temp to invest the persons in a company. For such incidents strict provisions for punishment are made under law.

1. Liability of Other Offences Regarding Information of the Prospectus:
(a) If the prospectus is not of the legal character or the necessary information are not provided therein, the Director or authorized person can be held responsible.
(b) 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.
(c) If the provisions regarding the statements of experts are not complied with, the person who has published the prospectus is liable for fine.
2. 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 debentures 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 provisions of the Companies Act, 2013 the following matters are to be included in the prospectus:

1. Name of a Company.
2. Address of Registered Office of a Company.
3. Names and addresses of Company Secretary, Chief Financial Officer, Auditor, Legal Advisors, Banker, Trustee, Guarantor Brokers and other specified persons.
4. The dates of opening and closure of the subscription, Allotment of securities and Time limit for payment of money.
5. Statement of Promoters to the effect that the company will open a separate account in a Bank and the entire fund would be kept in it.
6. All information about the under-writer Contract.
7. Consent of the Promoters, Auditors, specific Bankers, Experts and all other concerned officers.
8. Information about the authorized officer regarding subscription and the resolution regarding it.
9. The schedule about the process of distribution regarding securities.
10. Capital structure of a company as per the Companies Act.
11. The purpose of Public Subscription, conditions and other relevant matters.
12. The main object of a company and its present business, the place of business and the schedule of implementation of its project.
13. 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.
14. Information about the Minimum Subscription, information regarding the amount to be paid as premium, information about issuing of any share except cash.
15. Information about the Board of Directors, their appointment, remuneration and the details about their interest in the company, if any.
16. Information about the contribution of the promoters.
17. The following additional information is required to be given by such companies having business in existence:
(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 the obtained securities is to be utilized.
18. Statement to the effect that the contents of the prospectus are not violating the Companies Act, Securities Contract Act, 1956 or the SEBI Act, 1992.
19. The date written in the prospectus will be considered as the date of publication of the prospectus.

• The following are the main provisions regarding the issuance of the Prospectus:

1. Unless all the provisions pertaining to the registration of the Prospectus are complied with, the Registrar of Companies will not make registration of the Prospectus.
2. The date which is written in the prospectus will be considered as the date of publication of the prospectus.
3. No person shall be allowed to publish prospectus on behalf of the company before presenting it to the Registrar of Companies.
4. Each person whose name is shown in the prospectus must put his signature prior to making registration before the Registrar.
5. If Registrar needs details regarding any information stated in the prospectus, he should be provided such information in an information statement.
6. Written consent of each person shown in the prospectus is required to be attached.
7. The statement of the Expert person shown in the prospectus is to be taken as well as his written declaration to the effect that he has no interest in the company.
8. Printed copy of the prospectus is required to be given to the Registrar.
9. Prospectus has to be published within 90 days from the date of its registration. If it is published after 90 days, it is declared illegal.
10. Before registration of prospectus a statement is to be given before the Registrar of Companies stating therein that the Provisions of the Companies Act are complied with and there is no breach of the Security Contract Regulation Act and provisions of the SEBI Act.
11. No application forms can be published without Mini Prospectus for Securities purchase of a Company.

• Provisions of the Companies Act Regarding Private Placement:

1. The amount regarding this type of subscription can be paid through a cheque or draft or by Bank transactions. Payment cannot be done in cash.
2. The allotment should be made within 60 days for such type of subscriptions. If the directors do not make such allotment within 60 days, the applicants should be refunded the amount within 15 days after the expiry of 60 days.
3. On failure to make payment within 15 days after expiry of 60 days, the interest of 12 % per annum is to be paid by the company from the date of expiry of 60 days till the date of refund.
4. The amount received in such type should be kept in a separate account of a Scheduled Bank.
5. Only such persons will be given the intimation for the private placement, whose names are registered by the company before giving invitation for subscription. Such persons will be intimated for subscription by name.
6. The records regarding such intimation will be maintained as decided and after passing resolution regarding concerned private placement. The Complete detail about it shall be presented before the Registrar within 30 days.
7. The companies resolving to have private placement in such a manner shall not be entitled to make any advertisement for providing information to public about such resolution.
8. When company allots subscription in this manner, the names, addresses, number of allotted subscription and all other information about the Indemnity Holders are required to be presented before the Registrar of Companies.

1. Introduction: Investors decide to invest in thTh sharecapital or debenture on the basis of information mentioned in prospectus. In case of any misrepresentation, fraudulent advertisement or exaggerated statement made in the prospectus, it will be cheating or fraud to the investors, to avoid such situation and to protect the interest of investors. Some provisions are kept in the Companies Act for the misrepresentation in the prospectus.
2. What is Misrepresentation in the prospectus ? : Misrepresentation in the prospectus means..
(1) The statements made with reference to the conteIjs of the prospectus is misleading.
(ii) In order to mislead the reader necessary information inot provided in the prospectus.
(iii) By using ambiguous words in the prospectus an attempt is made to mislead the public.
3. Liability for Misrepresentation in the Prospectus : Two types of liabilities arise due to the misrepresentation in the prospectus (1) Civil liability and (2) Criminal liability.
(1) 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.
(2) 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.

1. Introduction : Prospectus is a public document. It includes all the necessary information which is useful to the investors. If directors hide any information or provide misleading information about the company in the prospectus then they are held legally responsible for it.
2. Matters to be stated in the Prospectus : As per the provisions of the Companies Act 2013, the following matters are to be included in the Prospectus:
[1] Name : Name of the company
[21 Address : Address of Registered office with the name of city, state and country.
[3] Name and address of main officers : Name and address of company secretary, chief financial officer, Auditor, Legal Advisor, Banker, Trustee, Guarantor, Broker and other specified persons.
[4] Information related to subscription : The dates of opening and closure of the subscription, Allotment of securities and Time limit for payment of money.
[5] Statement of promoter regarding bank : Statement of promoters to the effect that the company will open a separate account in a Bank and the entire fund would be kept in it.
[6] Underwriting contract : All information of under writers-their name, address, Amount of guarantees, Amount payable as underwriting commission etc.
[7] Consent of officers: Consent of the promoters, Auditors, specific Bankers, Experts and all other concerned officers.
[8] Resolution of Subscription: Information about he aüthoiized officer, regarding subscription and the resolution regarding it.
[9] Process of distribution of securities : The schedule about the process of distribution regarding securities.
[10] Capital structure : Capital structure decided by the directors of the company showing different securities as per the Companies Act.
[11] Purpose and conditions of subscription : The purpose of public subscription, conditions and relevant matters.
[12] Object of a company and its present business : The main object of a company and its present business, the place of business and the schedule of implementation of its project.
[13] Regarding project : Following informations are mentioned regarding project.
(i) The idea of promoters and risk factors in it.
(ii) Waiting period for the project.
(iii) Development in the project.
(iv) Time for completion of the project.
[14] Pending suit against promoters : Information regarding and pending suit, Legal proceeding or filing of a suit or legal proceeding against a promoter by Government Department during, past 5 years from the date of Publication of the prospectus.
[15] About Minimum Subscription: Information about the Minimum Subscription, information regarding the amount to be paid as premium, information about issuing any share except cash.
[16] Information about Board of Directors : Information about the Board of Directors, their appointment, remuneration and the details about their interest in the company if any.
[17] Contribution of promoters : Information about the economic and non-economic contribution given by promoters.
[18] 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.
[19] Statement of compliance with loss : Statement to the effect that the contents of the prospectus are not violating the Companies Act 2013, Securities Contract Act 1956 or the SEBI Act 1992.
[20] Date of Publication of Prospectus : The d written in the prospectus will be considered as the date of publication of the prospectus.

1. Introduction : Prospectus is a public document. It includes all the necessary information which is useful to the investors. If directors hide any information or provide misleading information about the company in the prospectus then they are held legally responsible for it.
2. Matters to be stated in the Prospectus : As per the provisions of the Companies Act 2013, the following matters are to be included in the Prospectus:
[1] Name : Name of the company
[21 Address : Address of Registered office with the name of city, state and country.
[3] Name and address of main officers : Name and address of company secretary, chief financial officer, Auditor, Legal Advisor, Banker, Trustee, Guarantor, Broker and other specified persons.
[4] Information related to subscription : The dates of opening and closure of the subscription, Allotment of securities and Time limit for payment of money.
[5] Statement of promoter regarding bank : Statement of promoters to the effect that the company will open a separate account in a Bank and the entire fund would be kept in it.
[6] Underwriting contract : All information of under writers-their name, address, Amount of guarantees, Amount payable as underwriting commission etc.
[7] Consent of officers: Consent of the promoters, Auditors, specific Bankers, Experts and all other concerned officers.
[8] Resolution of Subscription: Information about he aüthoiized officer, regarding subscription and the resolution regarding it.
[9] Process of distribution of securities : The schedule about the process of distribution regarding securities.
[10] Capital structure : Capital structure decided by the directors of the company showing different securities as per the Companies Act.
[11] Purpose and conditions of subscription : The purpose of public subscription, conditions and relevant matters.
[12] Object of a company and its present business : The main object of a company and its present business, the place of business and the schedule of implementation of its project.
[13] Regarding project : Following informations are mentioned regarding project.
(i) The idea of promoters and risk factors in it.
(ii) Waiting period for the project.
(iii) Development in the project.
(iv) Time for completion of the project.
[14] Pending suit against promoters : Information regarding and pending suit, Legal proceeding or filing of a suit or legal proceeding against a promoter by Government Department during, past 5 years from the date of Publication of the prospectus.
[15] About Minimum Subscription: Information about the Minimum Subscription, information regarding the amount to be paid as premium, information about issuing any share except cash.
[16] Information about Board of Directors : Information about the Board of Directors, their appointment, remuneration and the details about their interest in the company if any.
[17] Contribution of promoters : Information about the economic and non-economic contribution given by promoters.
[18] 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.
[19] Statement of compliance with loss : Statement to the effect that the contents of the prospectus are not violating the Companies Act 2013, Securities Contract Act 1956 or the SEBI Act 1992.
[20] Date of Publication of Prospectus : The d written in the prospectus will be considered as the date of publication of the prospectus.

1. Introduction: There is a limitations of capital in soleprietorship and partnership firm. To remove this limitation, company form came in to existence. Company collects huge capital from public through shares and securities. Before investing capital in such companies, minute investigation is done on the safety of capital and economic benefits by public. In order to provide necessary information of a company to the public at large, the company issues a document which is known as prospectus. The investors are attracted to invest in the company if they are satisfied with information presented in the prospectus.
2. 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.
(A) Red herring prospectus : In Book building method, this type of prospectus is used for public offering. It includes all the information except the price of share and the number of shares being offered. This has to be registered with registrar prior to the opening of the subscription.
(B) Shelf Prospectus : This prospectus is for a company offering wide range of securities in a year. Due to that a company is not required to file a new prospectus every time. This facility is available to the public sector banks and public financial institutions.
3. 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.
4. Conclusion : Prospectus should be in written form or printed. It can be in nature of notice circular or public advertisement. But in all forms it should be a document inviting public at large to subscribe or purchase of securities of the company.