Section 2(36) defines the term ‘Prospectus’ in these words: “a prospectus means any prospectus, notice circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any of any shares in, or debentures of a company.” The term ‘prospectus’ which invites deposits from or offers shares or debentures of company for subscription Jo the public.
It may be pointed out that the words “inviting deposits from the public” have been inserted in the above definition by the Companies (Amendment) Act, 1974. This is consequential to the provisions of Section 58A and 58B added by the said Amendment Act. With a view to ensuring fullest disclosure of material facts likely to influences the decision of the potential depositor, Section 58A, inter alia makes it obligatory for non-banking companies to disclose their financial position to the public before accepting deposits through an advertisement in the prescribed form.
Rule 4 of the Companies (Acceptance of Deposits) Rules, 1975, as amended, prescribes the form in which such an advertisement is required to be issued. Section 58B provides that all the provisions of the Act relating to a Prospectus shall, as far as practicable, apply to the said advertisement.
Contents of a Prospectus :
Prospectus is the only window through which the potential investor can look into the soundness of the company’s venture. (New Brunswick, etc. Co. vs. Muggeridge). Hence the Companies Act intends to secure the fullest disclosure of all material and essential particulars in a prospectus. The Act provides that every prospectus issued by or on behalf of a company must state the matters and set out the reports specified in “Schedule II” given at the end of the Companies Act, 1956.
Matters to be specified :
Briefly stated, as per “Schedule II”, a prospectus must contain at least the following particulars.
(1) Company’s name and address of its registered office.
(2) The main objects of the company, with the names, addresses and occupations of the signatories to the memorandum and the number of shares subscribed for by them.
(3) The number and classes of shares, if any and the nature and extent of the interest of the holder in the property and profits of the company.
(4) The details about the redeemable preference shares intended to be issued, if any i.e., the date and mode of redemption etc.
(5) Qualification shares of direction, if any.
(6) Any provision in the articles as to the remuneration of the directors, managing directors or otherwise.
(7) The names, addresses, descriptions and occupations of the director of manager, if any, or any of these proposed persons.
(8) Contents of the articles or of any contract relating to the appointment of the managing director or manager, the remuneration payable to them or them and the compensation if any, pay able to him for them office..
(9) The “minimum subscription”, that is, the minimum amount which, in the opinion of directors or the signatories of the memorandum, must be raised by the issue of shares in order to provide the sums in respect of each of the following heads (distinguishing the amount required under each head).
(i) the purchase price of any property purchased or to be purchased which is to be defrayed in whole or in part out of the proceeds of the issue.
(ii) (a) any preliminary expenses payable by the company; and (b) any commission (underwriting or otherwise) payable to any person in consideration of his agreeing to subscribe for, or of his procuring or agreeing to procure subscriptions for any shares in the company;
(ii) the repayment of any moneys borrowed by the company in respect of any of the foregoing matters;
(iii) working capital; and
(iv) any other expenditure, stating the nature and purpose thereof and the estimated amount in each case.
Where any amount is to be provided otherwise than out of the proceeds of the issue, the sources out of which it is to be provided, must also be stated.
(10) The time of the opening and closing of the subscription list.
(11) The amount payable on application and allotment of each shares.
(12) The particulars of contracts which give any option or preferential right to any person to subscribe for any shares or debentures of the company — all relevant facts relating to the grant of such right must be stated.
(13) The amount of premium, if any, on each share which is to be issued and, if some, shares are to be issued at a premium and other shares of the same class at a lower premium or at par or at discount, the reasons for the differentiation and how any premiums so received are to be disposed of.
(14) Where any issue of debentures of shares is underwritten, the names and addresses of underwriters, underwritten amount, under writing commission and opinion of directors regarding resources of underwriters, must be stated.
(15) Particulars of any property to be acquired by the company and the price whereof is to be paid out of the proceeds of the issue, together with the names, addresses, etc. of the vendors, the purchase price and the mode of payment.
(16) The amount or estimated amount of preliminary expenses and the expenses of the issue and the persons by whom any of those expenses have been paid or are payable.
(17) Names and addresses etc., of company promoters and the amount or benefit intended to be paid or given to them.
(18) The particulars of every material contract in brief.
(19) The names and addresses of the auditors, if any, of the company.
(20) Detailed particulars of the nature and extend of the interest of every director or promoter in the promotion of the company and in any property proposed to be acquired by the company.
(21) Rights, privileges and restrictions attached to several classes of shares.
(22) Restrictions, if any relating to membership rights i.e. right to vote, right to attend and speak at meetings of the company, right to transfer shares etc.
(23) A reasonable time and place at which copies of all balance sheets and profit and loss accounts, if any, on which the report of the auditors is based, may be inspected.
(24) In case the company wants to enlist its shares or debentures with a stock exchange, the prospectus must also state the name of the stock exchange (or stock exchanges) to which application has been made or will be made for permission to deal in and for official quotation for the shares and debentures offered thereby (Sec. 73).
In addition to the above particulars an existing company will also provide the following information :
(1) Amount or benefit paid within two preceding years to any promoter or officer of the company, and the consideration thereof.
(2) Particulars of any property acquired within two preceding years in which any director or promoter was interested.
(3) If any prospectus was issued within two’ preceding years, the details of the shares subscribed for and allotted.
(4) Particulars of shares or debentures issued within two preceding years as fully or partly paid up, otherwise than in cash.
(5) Particulars of premiums received on shares issued within two years, preceding the issue of prospectus.
(6) Any commission on the issue of shares or debentures paid with-in two preceding years or payable to any person.
(7) Particulars of the length during which the business has been carried on by the company—profit and loss and balance sheet particulars for the last five years.
(8) If any of the profits of the company or of any of its subsidiaries have been capitalized, particulars of such capitalization.
(9) Particulars of the surplus arising from any revaluation of the assets of the company or any of its subsidiaries during the two years preceding the date of the prospectus and the manner in which such surplus has been dealt with.