PROSPECTUSProspectus is the window through which an investor can look into the soundness of a company. Investors, therefore be given a complete picture of the activities and financial position of the company.ANY document inviting offers from the public for the subscription of shares or debentures of a Co. is called Prospectus.IN WRITING: It cannot be oral. But it must be in writing. An advt. in TV or films is Not a prospectus. SUBSCRIPTION: Agreeing to take shares and puts himself to liability. It is an INVITATION TO PUBLIC to subscribe.

NOT treated as invitation to public : Offers to ones own kith and kin or offer to selected persons ONLY by invitation and not to others.

PROSPECTUS must be dated, signed and registered with ROC on or before its publication. To be issued within 90 days of delivery to ROC. MATTERS TO BE STATED: 1) General Information 2) Capital Structure 3) Terms of present issue 4) Company management and Project 5) Outstanding litigation, criminal prosecution, statutory dues, risk factors. 6) Financial information: Report by auditors: P&L a/c, assets & liabilities, dividend paid - last 5 financial years. 7) Statutory & other information: Fees, commission, listing etc..

2. KINDS OF PROSPECTUSSHELF PROSPECTUS: Issued by any financial institution or bank for one or more issues of securities specified in that prospectus. Valid for 1 year from the date of opening of the first issue.

To file information memorandum relating to new changes created.RED HERRING PROSPECTUS: Prospectus which does NOT have complete particulars on the price & quantum of securities offered.

FINAL PROSPECTUS: After the closure of the issue, prospectus filed with ROC issue price determined by Book Building process, the size of the issue and certain other information.

Abridged Prospectus: Every application for shares should contain salient features of the prospectus. Information is given to prospective investor to take informed decision. This is also known as memorandum containing salient features of prospectus.Prospectus by implication: ALL documents containing offer of shares for sale are Deemed to be Prospectus by implication of law. Therefore all the rules of Prospectus are applicable.

3. Prospectus cont.. STATEMENT IN LIEU OF PROSPECTUS: Public Company may NOT invite shares from the general public but arranges the money from private sources, then it need not issue prospectus. 3 days before allotment of shares or deb. deliver to ROC for registration the statement in lieu of prospectus, signed by the directors. If the statement contains any untrue statement or omission of facts persons who authorized it will be liable.A private limited co. on conversion to public company required to file statement in lieu of prospectus.When Prospectus is NOT required to be issued: for underwriting agreements, offer to existing members only (rights issue), when shares are not offered to public , Private Ltd Co.. OFFER FOR SALE / DEEMED PROSPECTUS : Legal requirements are avoided by Co.s in the past by allotting shares to an Issuing House which in turn will SELL the shares to public at a higher price. Now any document which makes offer for sale shall fall within the definition of prospectus.

MISSTATEMENTS & GOLDEN RULEMISSTATEMENT : If there is a misstatement or withholding of any material information in the prospectus and if that statement has induced any person to subscribe shares then he has the right to 1) Rescind the contract within a reasonable time, 2) such statements must be misrepresentation of facts and is not a mere opinion, 3) this statement has induced him and has relied upon this and has subscribed, but the statement is untrue. Member can also claim for damages.CASE LAW: REX Vs LORD KYLSANT: A Co. stated that it is paying dividend every year. It looks that Co is financially sound. But it was making losses & paid dividend out of capital.LOSS OF RIGHT OF RESCISSION: If the shares are sold, transferred or pays call money, or receives dividend, or on unreasonable delay to claim, attend and vote in meetings.

Liability For Misstatement.

CIVIL LIABILITY AND CRIMINAL LIABILITY.AGAINST THE COMPANY AND AGAINST THE DIRECTORS.LIABILITY OF DIRECTORS FOR DAMAGES FOR NON COMPLIANCE.

LIABILITY UNDER GENERAL LAW: A shareholder can hold all or any person responsible for misstatement or for fraud. Case law: Derry Vs Peek Prospectus contained a statement that the Co. has the right to run trams by steam instead of horses. They had the approval of Parliament but the Board of Trade rejected it. It was held that the Directors NOT liable for fraud but only for misstatement since directors honestly believed that the statements were true.

Defences available: Director will not be liable if he can prove that he has : withdrawn his consent before issue of Prospectus, without his consent it has been stated and having come to know has given public notice, or he believed it to be true on reasonable grounds.