The term Prospectus’ under Section 2 (36) 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 in. or debentures of, a body corporate. A private company under Section 3 (I) (iii) is prohibited from inviting the public to subscribe for its shares or debentures; and also prohibited to invite or accept deposits from persons other than its members, directors or their relatives. Accordingly, a private company has no power to issue prospectus. Only a public company has power and privilege to issue prospectus to public for subscription of shares in or debentures of the company or for inviting public deposits. If a public company not able to raise funds from its own resources and does not issue a prospectus with reference to its formation then it has to file a statement in lieu of prospectus with the concerned Registrar of Companies. Elements of a Prospectus
(a) There must be an invitation to the public.
(b) The invitation must be made by or on behalf of the company, (c) The invitation must to subscribe or purchase, and
(d) The invitation must relate to securities.
Statement in Lieu of Prospectus
As per Section 70 (I), a company (excluding a private company) having a share capital, which does not issue a prospectus on or with reference to its formation, or which has issued such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, shall not allot any of its shares or debentures unless at least three days before the first allotment of either shares or debentures, there has been delivered to the Registrar of Companies (ROC) for registration a statement in lieu of prospectus signed by every person who is named therein as a director or proposed director of the company or by his agent authorized in writing, in the form and containing the particulars set out in Part I of Schedule III and. in the cases mentioned in Part Il of that Schedule, setting out the reports specified therein, and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule. [Section 70 (1)] If a company acts in contravention of this sub-section. the company, and every director of the company who willfully authorizes or permits the contravention. Shall be punishable with fine which may extend to ten thousand rupees. [Section 70 (4)]
Prospectus is a bulky document and it is not economically feasible to supply full-fledged prospectus to the prospective investors. Therefore, as a cost saving measure, provision has been made to issue prospectus in abridged form. The dictionary meaning of ‘Abridged Prospectus' is a condensed prospectus, reduced prospectus. Abbreviated prospectus or shortened prospectus. Thus, it means a prospectus in brief where the company necd not provide information in the prospectus in detail under several sub-headings as required by the Schedule II, but, the information is given in condensed form. i Under Section 2(1), ‘Abridged Prospectus' means a memorandum containing such salient features or a prospectus as may be prescribed. In the Companies Amendment Act, 1988, word prospectus has been substituted by “memorandum containing such salient features of prospectus as may be presented”. Such memorandum is the abridged form of prospectus. After this amendment, companies are not required to issue full/detailed prospectus along with application form, which may be issued only on the request or the applicant. u New rule 4cc has been inserted in the Companies (Central Govt) Rules and Forms 1956 and as per this rule, the salient features should be given in Form 2A which requires information to be given tinder nine heads: 1. General Information
2. Capital Structure
3. Terms of Present Issue
4. Particulars of...
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