Wednesday, 4 June 2014

Prospectus & allotment of securities under the Companies Act 2013

Prospectus & Allotment of Securities under the Companies Act 2013
Chapters III
Sections 23 to41

Sec 23: Issue of Securities by:

Public Company
                     Prospectus (Public Offer)       
                     Private Placement
                     Rights issue / Bonus shares              
Sec 24: Power of SEBI to regulate issue and transfer of securities etc....

SEBI shall make regulation and administer the following activities of the listed companies / those companies who are intending to get their securities listed on the stock exchange:

a.    Issue and transfer of securities &
b.    Non payment of dividend

Sec 25: Document containing offer of securities for sale is deemed to be prospectus:

When a company allots securities to the public based on an offer that has been made, then,any document through which such an offer is made is considered to be a prospectus and it has to fulfil all the requirements of a prospectus.

-          Securities to be offered for sale to the public

o   Within 6 months after the allotment or agreement to allot or
o   At the date when the allotment was made andthe whole of the consideration was received.

In order to give effect to sec 26 the prospectus has to contain the following:

o   Net amount of consideration received or to be received and
o   The time and place of inspecting the allotments made
o   The names of the persons making the allotment
o   The prospectus has to be signed by 

·               2 directors in case of directors
·               Firm – ½ of the partners in case of firm

Sec 26: Information to be stated in the Prospectus:

-       Prospectus to contain the objective of the offer, the main object of the company.
-     Name and address of the registered office of the company, CFO, Auditors, legal advisors and such other persons as may be prescribed and their consent and interest on issue of prospectus.
-      The date of opening and closing of the issue (time schedule for the allotment)
-     A declaration about the issue of allotment letters and refunds
-    A statement by the board of directors on the separate bank account that would be opened to deposit the money received on application and the details of their utilization and un-utilization.
-      Details on minimum subscription and underwriting of the shares if any
-  Information on management perception, risk factors, gestation period of the project, deadlines for completion of the project, progress details
-  Any litigation or legal action pending during the last 5 years immediately preceding the year of issue of prospectus.
-      Financial information for the last 5 years. If 5 years has not been completed by the company then information till the last date before the issue of prospectus.
-       A declaration about the compliance is to be given
-   Before issuing prospectus the same has to be registered with the ROC in the prescribed manner. (ie.) along with the signatures and a written consent as the case may be.
-    The prospectus is valid for a period of 90 days after the date on which a copy thereof is delivered to the registrar.
Sec 27: Variation in terms of contract or objects in prospectus:

-          The terms of the contract/ prospectus can be modified by
§  Holding a general meeting and
§  Passing a special resolution

o   The modified notice to be published in the newspapers (English and vernacular lang. in the place where the registered office is situated).
Note: money raised through prospectus can not be used for buying trading or dealing in equity shares of other listed companies.

Q: Does it mean you can use it for dealing in securities other than equity shares?

o   Exit option is to be given to the dissenting shareholders. (SEBI regulations shall be applicable).

Sec 28: Offer of sale of shares by certain members of company

When certain members of the company make an offer for issue of securities onbehalf of the company to the public then such an offer is treated to be a prospectus as allotment is being made on such offer.

Prospectus issued in such manner to contain all the information as required under law.

Sec 29: Public offer of securities to be in DEMAT form:

-          Every company making public offer and
-          The promoter of every public company making a public offer of any securities to hold such securities in dematerialised form only.
-          Such other class of companies as may be prescribed.

Sec 30: Advertisement of prospectus:

-          Every company making public offer and
-      The promoter of every public company making a public offer of any securities to hold such securities in dematerialised form only.
-        Such other class of companies as may be prescribed.

Sec 31: Shelf Prospectus:

-     Shelf prospectus along with the Information Memorandum is to be filed with the registrar at the stage of the first offer of securities
-       It shall be valid for a period of 1 year from the date of first offer
-     No further prospectus is required to be issued if further offer is made during the validity period.

Sec 32: Red Herring prospectus (RHP):

-         Red herring prospectus may be issued prior to the issue of prospectus.
-        RHP shall be filed with the Registrar atleast 3 days prior to the opening of the subscription list and the offer
-   In case of any variations in the RHP and the prospectus the same shall be highlighted.
-    On the closure of the offer the prospectus stating the details of the capital raised, closing price, and other information that was not available on the RHP shall be filed with the Registrar and SEBI.

Sec 33: Issue of application forms for securities:

The application form for purchase of securities shall be accompanied by an abridged prospectus containing the salient features of the Memorandum.

However it is not required if the application was issued:

o   To enter into an underwriting agreement or
o   In relation to those securities that were not offered to the public

Sec 34, 35 and 36: Criminal& civil liability on the company:

Every person making the offer shall be liable in case any un-true or misleading statements are given in the prospectus

If any person has sustained any loss or damage due to any untrue or misleading statements, then the company and every officer in default shall be liable to pay compensation as the case may be.

However, if the concerned personproves that he is not guilty then he shall not be liable.

-          Fraudulently inducing persons to invest money.

Sec 38: punishment to such persons who acquires or makes an application to acquire shares illegally:

-          Any person who:
o   Makes an application to the company in a fictitious name
o   Makes multiple applications in different names
o   Directly or indirectly induces the company to allot securities in fictitious names


Shall be punishable by the court and the court may order disgorgement of gain, if any and to seizure and disposal of the securities in his possession.

Such recovered fund shall be transferred to Investor Education and Protection Fund.

Sec 39: Allotment of Securities of Company:

-         The company shall allot securities on obtaining the minimum subscription amount statement in the prospectus or 5% of the nominal amount of the securities or such other sum as may be prescribed by SEBI.
-           The return of allotment shall be filed with the ROC on allotment.
-      If the minimum subscription amount is not received within 30 days from the date of issue of prospectus or such other date then the amount received shall be refunded.

Sec 40: Securities to be dealt with stock Exchanges:

-        The prospectus to contain the details of the stock exchange where the securities are going to be listed.
-            The amount received on application shall be deposited in a separate bank account and shall be used

       o   for adjusting against the allotment of securities or
       o   for repayment of money to the applicants

Sec 41: Global Depository Receipt:

-          A company canissue GDR in any foreign country after fulfilling the following criteria.

o   Hold General meeting &
o   Pass Special Resolution