Prospectus
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Role
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Name
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Affiliation
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Principal
Investigator
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Dr.Gyanendra
Kumar sahu
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Asst.Professor
Utkal University
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Content Reviewer
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Dr.Gyanendra
Kumar sahu
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Asst.Professor
Utkal University
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Description of Module
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Items
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Description of Module
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Subject
Name
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Law
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Paper
Name
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Corporate
Finance
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Module
Name /Title
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Prospectus
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Module
No.
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VI
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Prospectus:
Objective: After reading this module, the
learners will have a clear picture of :
1. To bring to the notice of the public that new
company has been formed.
2. To arouse interest of the public to make
investment in the company
3. To create confidence in the public about the
company,
4. Its directors and profitibilitity.
Learning Outcomes:
It
is a document containing a statement of the property, business, undertaking,
enterprise or project for the formation and development of a company for which
an appeal is made to the public to subscribe for shares.
Prospectus:
Definition:
According to section 2(36) of the companies Act 1956 Prospectus means any
document described or issued as a prospectus and includes any notice, circular,
advertisement or other document inviting deposits from the public or inviting
offers from the public for the subscription or purchase of any shares or
debentures.
Types of Prospectus
Shelf Prospectus (Sec.31) :Shelf
prospectus means a prospectus in respect of which the securities or class of
securities included therein are issued for subscription in one or more issues
over a certain period without the issue of a further prospectus.
(i)Shelf
prospectus may file with the registrar at the stage of first offer of securities
which shall indicate a period not exceeding one year as the period of validity.
A shelf prospectus contains all material facts relating to the financial
position of the company.
Red herring Prospectus (Sec.32):
Red herring Prospectus means a prospectus which does not include complete
particulars of the quantum or price of the securities included therein.
I
A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus.
Ii
Red herring Prospectus shall file with the Registrar at least three days prior
to opening of subscription.
Iii
Prospectus stating therein the total capital raised, where by way of debt or
share capital and the closing price of securities and other detail. Herring
prospectus shall be filed with the Registrar and the SEBI.
Issue of Shares:
1. Meaning: To put into circulation. Or
Shares of a company issued by the company in return after payment of subscription.
2.
In Clark’s case 1878 :it was stand that issue of shares must be taken as
meaning something distinct from allotment it is an act where the title of the allottee becomes complete.
3.
Public Issue: means an invitation by a company to public to subscribe to
the securities offered through a prospectus.
4.
Initial Public issue of shares: A
public company which offers shares to the public for subscription for the first
time is called Initial public issue. Issue must be public not private communication.
5.
Subsequently issue: Share issued
subsequently by an established company is called further issue of public
shares.
Allotment of Shares:
Meaning:
The term allotment means to divide or distribute of shares among the
shareholders.
Allotment: An
application for shares is an offer to
shareholders when an application is accepted it is an allotment.
Definition:
According to palmer: Allotment means the appropriation to an application by a resolution of the directors of a
certain numbers of shares in response to an application.
General Principles of allotment of
shares:
1. Allotment by proper authority:
An allotment must be made by a resolution
of the Board of directors of the company.
2. Within Reasonable time:
Allotment must be made within a reasonable period of time otherwise the
application lapses.
3. Must be communicated:
The allotment must be communicated to the applicant I;e the allottee.
4. Absolute and Unconditional:
The allotment must be in accordance with the term of the offer. The allotment
must be absolute and unconditional.
5. Revocation:
Application may be withdrawn any time before communication of its acceptance.
Statutory
Requirements or restrictions relating to allotment:
1. Allotment of securities by a
company (Sec.39): No allotment of any securities of a
company offered to the public for subscription shall be made unless the amount
stated in prospectus paid to the
company.
2. Allotment of shares to be dealt
with in stock exchanges (Sec.40): Every company making
public offer shall before making such offer obtain permission from the stock
exchanges.
3.
Calls
on Shares of same class to be made on Uniform basis (Sec.49):Where
any calls for further share capital are
made on the shares such calls shall be made on a uniform basis.
