RECAP IN PREVIOUS LECTURE WE HAVE LEARNT

1. REGISTERED OFFICE• Official address of an incorporated company where a company

receives office correspondences and formal notices

2. PROMOTERS• The one who undertakes to form a company with reference to

a given object and to set it going

3. CRO• Company registration offices for the purpose of incorporation

of companies

COMPANY

PROSPECTUS

.

PROSPECTUS COMPANIES ORDINANCE, 1984 DEFINITION: Prospectus means any document described or issued as

prospectus and includes • any notice, circular, advertisement or any other

communication, inviting offers from the public for the subscription or purchase of any shares in or debentures of, body corporate, inviting deposits from the public other than deposits invited by a banking company or a financial institution approved by the Federal Government whether described as prospectus or otherwise.

PROSPECTUS MEANING:• Company prospectus is released by company to inform

the public and investors of the various securities that are available. These documents describe about mutual

funds, bonds, stocks and other forms of investments offered by the company. A prospectus is generally accompanied by basic performance and financial

information about the company. • Prospectus is a formal legal document, which is required

by and filed with the SECP that provides details about an investment offering for sale to the public, it should contain the facts that an investor needs to make an

informed investment decision

PROSPECTUS CONCLUSION:

Prospectus is a mandatory document for limited organization to commence their business, but its complicated procedure delays the operation of any business, therefore a no. of organizations hesitate to issue

Prospectus to general public for subscription of share capital & Debenture.

PROSPECTUS

WHICH COMPANIES ARE REQUIRED TO ISSUE PROSPECTUS

• Every public listed company who intends to offer shares or debentures of the company to the public.

• Every private company who ceases to be a private company and converts into a public company and intends to offer shares or debentures of the company to the public.

CONTENTS OF PROSPECTUS1. The contents of the Memorandum with the particulars of

signatories and number of shares subscribed by them.

2. The number and value of shares.

3. Description of business to be undertaken and its prospects.

4. Any provision in the articles relating to remuneration of directors and chief executives.

5. Particulars of the present and proposed directors, chief directors, managing agents and secretary.

CONTENTS OF PROSPECTUS

6. The amount of minimum subscription.7. The date and time of the opening and closing of the

subscription list.8. The amount payable on application for each share.9. The number, description and amount of share capital issued

within the two preceding years along with the amount of premium or discount, if any.

10. Name of the underwriters, if any along with opinion of directors as to financial soundness of underwriters.

CONTENTS OF PROSPECTUS

11. The name and address of auditors and legal advisors.12. The amount of preliminary expenses.13. The right of voting at meeting s of the company. 14. Particulars of capitalization of any reserves or profits if any.15. Particulars of surplus on revaluation of the assets and the

manner in which such surplus has been applied, adjusted or treated.

TYPES OF PROSPECTUS

• ABRIDGED PROSPECTUS.

• DEEMED PROSPECTUS.

• SHELF PROSPECTUS.

• RED HEARING PROSPECTUS

REQUIREMENTS OF PROSPECTUS1. Prospectus must be dated i.e. publication date. (Sec. 52)2. It must include an auditor’s report on last five years profit and loss account

and on balance sheet at last date on which accounts were prepared being a date not more than 120 days before the date of issue of the prospectus.

3. It must be issued/published not less than seven or more than thirty days before the subscription date. (sect.53(2))

4. If prospectus includes a statement made by an expert, the expert must not be engaged or interested in the formation or promotion or in the management of the company. A written consent of the expert should also be obtained before the issue of prospectus with the statement. (sect. 54 & 55)

5. In case of a listed company approval of the SECP must be obtained within sixty days before the date of issue of prospectus. However, Commission may, impose such conditions as it may deem necessary. (sect 57 (1) & (2))

Cont’d6. A copy of prospectus must be sent to the registrar before the issue of

prospectus. (sect 57 (3))

7 . Registrar shall not register the prospectus unless the above requirements have been complied with.

8 . A sufficient number of copies of the prospectus issued under sub-section (1) of section 53 shall be made available at the registered office of the company with the stock exchange at which the company is listed or is proposed to be listed and with the bankers to the issue and the prospectus in its full text or in such abridged form as may be prescribed shall be published at least in one Urdu and one English daily newspaper having circulation in the province where stock exchange is situated at which the company is listed. (sect 53 (1A))

EXPERTS OPINION

1. Expert includes an engineer, a valuer, an accountant, or every other person whose profession gives authority to any statement made by him.

2. Experts written consents are required to be obtained which are not withdrawn before the issue of prospectus.

3. Statement is required to be included in the prospectus that experts have given and not withdrawn their consents.

4. An expert shall not be a person engaged or interested in the formation or in the management of the company.

DOCUMENTS REQUIRED

DOCUMENTS REQUIRED TO BE ATTACHED TO THE PROSPECTUS:

1. Consent of expert required under section 55; and

2. In the case of a prospectus issued generally; a copy of contracts regarding remuneration of Chief Executive etc and in case

of an unwritten contract, a memorandum thereof, and a report from the auditors regarding any adjustments to assets and liabilities

of the company and reason thereof.

LIABILITIES ARISING OUT OF UNTRUE STATEMENT

When there is any untrue statement in the prospectus, there arises two types of liabilities:

• Civil Liability• Criminal Liability

LIABILITIES FOR MISSTATEMENT IN PROSPECTUS

CIVIL LIABILITY FOR MISSTATEMENT IN PROSPECTUS:

No person shall be liable for compensation of loss or damage if he proves that:

1. He withdrew his consent to become the director before the issue of prospectus; or

2. The prospectus was issued without his knowledge; or3. After the issue of prospectus and before allotment , he became aware

that the prospectus was untrue and withdrew his consent and gave a public notice of the withdrawal; or

4. As regards the untrue statement, the expert believes on reasonable grounds that the statement was true, correct and fair representation.

Cont’dCIVIL LIABILITY OF EXPERT (SECTION 59) :

Experts civil liability is limited to the opinion given by him in the prospectus. He is not considered to be a person who has authorized for issue the prospectus. The expert would not be held liable if he proves any of the following,

1. That he had given the consent for the inclusion of his opinion in the prospectus but he withdrew the consent before the prospectus was filed for registration with the registrar.

2. That after registration of prospectus and before allotment of shares he became aware of any untrue statement in his opinion and he withdrew his consent and gave a reasonable public notice of such withdrawal.

3. That he believed up to the date of allotment that the statement was true to the best of his competence.

Cont’dCIVIL LIABILITY OF DIRECTORS (SECTION 59)

Directors’ civil liability expands to the whole of the issue as those are the persons who have authorized for issue the prospectus. The directors shall be responsible even for the untrue statement made by the experts in the prospectus. A director can avoid civil liability if he proves any of the following,

1. That the director had withdrawn his consent to become the director and the prospectus was issued without his authority.

2. That the prospectus was issued without his knowledge and when he became aware of the issuance of prospectus; he gave a reasonable public notice of the fact.

Cont’dCIVIL LIABILITY OF DIRECTORS (SECTION 59)

3. That he became aware of the untrue statement after issuance of prospectus and he gave a reasonable public notice regarding such untrue statement.

4. That the statement was true copy or true extract from the opinion made by any expert and the directors believe that the expert had sufficient knowledge and ability to express the opinion.

5. That the statement was true copy or true extract taken from any public official document.

CRIMINAL LIABILITY (SECTION 60)

Where a prospectus includes any untrue statement, • every person who signed or authorized the issue of

prospectus shall be punishable – with imprisonment for a term which may extend to TWO

years or a fine which may extend to TEN THOUSAND rupees, or BOTH.

AVAILABLE DEFENCES DEFENCES AVAILABLE AGAINST CIVIL AND CRIMINAL LIABILITY

1. A person is not liable for civil or criminal liability if he proves that:

• the untrue statement was immaterial• he had reasonable ground to believe that the statement was true• as regards any matter not disclosed he proves that he had no

knowledge thereof• non-compliance arose from an honest mistake of fact on his part• the prospectus was issued without his knowledge or consent and on

becoming aware of its issue, he forthwith gave a reasonable public notice of the fact

• after the issue of prospectus but before the allotment he withdrew his consent and he gave a reasonable public notice

2. Experts, bankers etc. are not liable merely on the basis of their consents unless any material misstatement is there on their part.

PENALTY

PENALTY FOR FRAUDULENTLY INDUCING PERSONS TO INVEST MONEY

Any person who induces any other person by making false statement to make investment in shares or debentures of a company shall be liable to imprisonment up to three years or with a fine up to Rs 20,000 or with both

UNAUTHORIZED PERSONS.

FOLLOWING PERSONS SHALL NOT BE DEEMED TO HAVE AUTHORIZED THE ISSUE OF PROSPECTUS:

1. An expert who has given his consent to issue prospectus with his statement and

2. The auditor, legal advisor, attorney, solicitor, banker and broker.

OFFER FOR SALE DOCUMENTS (SECTION 61 & 62)

1. Owner of 10 percent or more shares of the company can make an offer to the general public for divesting his shares to the public with prior approval of Commission.

2. Such offer can be made only by issuing a document in the nature of prospectus. This document is named as “Offer for Sale Document” and all the provisions of law as applicable to the prospectus apply to this document as if it is a prospectus issued by any company.

3. The person making the offer shall be considered to be a director of the company for the purpose of this document.

4. The directors of the company shall be responsible to the same extent in case of this offering document as they are responsible in case of a prospectus.

GENERAL PROVISIONS REGARDING PROSPECTUS (63 & 65)

1. Untrue statement in context of prospectus includes a statement which in misleading in the context in which it is used in the prospectus. If the omission of any statement from a prospectus can be concluded as misleading; then the prospectus would be considered as a prospectus having untrue statement. (section 63 (1))

2. General public in context of offer for sale or invitation for subscription of shares includes any section of public, including the existing shareholders or debenture holders of the company. However section of the public will not be taken as public when it is assured that the shares or debentures shall not be available for subscription by anybody other than those person to whom offer is made. Also section of public would not be considered as public when the offer can be proved to be domestic concern of the person making the offer. (section 65(1) & (2))

STATEMENT IN LIEU OF PROSPECTUS1. It is a statement which is delivered by a company, having share capital to

the Registrar for registration, at least three days before the first allotment of shares or debentures under the following conditions:

• Where a company does not issue prospectus; or• Where a company has issued a prospectus but has not proceeded to allot

any of its shares offered to the public for subscription.

2. SILOP is to be signed by every person who is named therein as a director or a proposed director of a company.

3. Where a company which is required to submit a SILOP does not comply with the requirement, it can not allot shares. (section 69(1))

CONTENTS OF STATEMENT IN LIEU OF PROSPECTUS

1. The name of the company.2. The nominal share capital of the company divided into number of ordinary

shares and par value per share.3. Description of the business to be undertaken and its prospects.4. Names, addresses, description and occupations of the proposed or

appointed directors , chief executive, managing agent and secretary of the company.

5. Provisions regarding the appointment and remuneration of the above officers of the company.

Cont’d

5. Voting rights in the meetings of the company.6. Numbers and the amount of shares and debentures agreed to be issued.7. Names, occupation and addresses of vendors of property purchased or

proposed to be purchased by the company.8. Amount payable in cash, shares or debentures, to each vendor of the

property.

DIFFERENCES B/W PROSPECTUS AND SILOP

PROSPECTUS :

1. Filed by a public listed company.2. Has been defined in definitions

Sec. 2 (29)3. Submitted to registrar,

commission and shareholders.4. Is a document containing an

advertisement for invitation of subscription from the public.

STATEMENT IN LIEU OF PROSPECTUS:

1. Filed by a public unlisted company.

2. Has NOT been defined in definitions.

3. Submitted only to registrar.4. Is not an invitation of

subscription.

DIFFERENCES B/W PROSPECTUS AND SILOP

PROSPECTUS :

5. Approval of commission must be obtained within 60

days before the issue of prospectus.

6. No prescribed form is specified in this Ordinance.

7. No prospectus shall be issued unless before the date of its publication, a copy signed by the directors or their agent has been delivered to the registrar

STATEMENT IN LIEU OF PROSPECTUS:

5. Is not a kind of advertisement for invitation of subscription.

6. Is filed on prescribed form.

7. It is filed with the registrar concerned at least 3 days before the first allotment of shares

UPCOMING LECTURE

1. SHARE2. TYPES OF SHARES3. SHARE CAPITAL4. CLASSES AND KINDS OF SHARE CAPITAL