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PROSPECTUS

Prospectus means any document described or issued


as prospectus and includes any notice, circular,
advertisement or other document inviting deposits
from public or inviting offers from the public for the
subscription or purchase of any shares or
debentures.
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PROSPECTUS
A document shall be called a prospectus if it satisfies 2
things:
- It invites subscription to shares or debentures or
invites deposits
- The aforesaid invitation is made to public.
A Private Co. is not required to issue Prospectus.
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CONTENTS OF PROSPECTUS
1. General Information
2. Capital Structure
3. Terms of the Present Issue
4. Company, Management & Project
5. Financial Performance of the company for the last 5 years
6. Litigations and Defaults
7. Particulars of companies under the same management
8. Managements perceptions about the risk perception
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RED-HERRING PROSPECTUS
A RHP is a prospectus which does not have complete
particulars on the price of securities offered and quantum
of securities offered.
RHP contains either the floor price of securities or the
price band.
The applicants bid for the shares quoting the price and the
quantity that they would like to bid.
Once the offer for securities is closed, a final prospectus
stating the total no. of shares and the closing price of the
securities is filed.
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PROCESS
Prepare the DRHP
Filing of DRHP with SEBI
Incorporating the SEBIs comments in DRHP
Filing of RHP with Information Memorandum
Filing of Prospectus
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DEPOSITORY SYSTEM
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
As a part of Capital Market Reforms, the
Government enacted Depositories Act, 1996.
Depository system maintains the ownership
records of securities in the book entry form
or electronic form, whereas in physical mode
every share transfer is accompanied by share
certificate & submitted to the Co.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
The process of physical movement of share
certificates often involves :
1) Long Delays;
2) Bad Deliveries (mis-match of signature, form not
properly filled)
3) Significant time involved in effecting ownership
changes leads to lower trading volumes.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Investor also face problems like:
1) Loss of share certificates;
2) Forgery;
3) Mutilation
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PHYSICAL MODE OF HOLDING SHARES
ISSUER
INVESTOR
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Investor
Depository Participant
Depository
Issuer
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Depository:
1) A Depository is a provider of facility for holding
and / or transacting securities in, electronic
form.
2) Act provides for the establishment of single or
multiple depositories.
3) Currently, 2 - NSDL & CDSL.
4) To avail of the services offered by a depository, the
investor has to open a demat account with a
DP.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Depository:
http://www.cdslindia.com/
https://nsdl.co.in/
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Depository Participant:
1) DP is an agent of the Depository through
which it interfaces with the investor and
provides depository services.
2) Agencies such as Banks, FIs, large corporate
brokerage firm, NBFC acts as DP.
3) An investor will always interact with a DP for
the services and can not directly approach
the depository for any services.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Dematerialization (Demat)
Dematerialization is a process by which physical
certificates are converted into electronic
form.
Rematerialization (Remat)
Dematerialization is the process of converting
securities in electronic form back in physical
certificate form.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Benefits of a Depository System:
It is a safe and convenient way to hold
securities in demat.
Reduces the cost of issue.
No Stamp duty on transfer of shares.
Faster settlement cycles same day.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Benefits of a Depository System:
Eliminates bad delivery.
Instantaneous transfer of securities enhances
liquidity in the market.
Each share is a market lot for the purpose of
transactions - so no odd lot problem.
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LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS
Is it compulsory for me to have a Demat
Account?
As per the requirement, all the public issues of
size in excess of Rs.10 crore, are to made
compulsorily in the demat mode.
PC Jewellers.pdf
Prestige Estates Projects Limited.pdf
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MEMBERSHIP IN A COMPANY
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WHO ARE MEMBERS?
Shareholders are the Members.
Every Shareholder is a Member and Every
Member is a Shareholder.
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MODES OF ACQUIRING MEMBERSHIP
A person may acquire membership of a Co.
i. By Subscribing to the MOA; Final MoA.pdf
ii. By making an application to the Co. for
allotment of shares;
iii. By Executing an instrument of transfer of
shares;
iv. By consenting to the transfer of share of a
deceased member in his name (transmission);
v. By holding equity share capital of a Co. whose
name is entered as beneficial owner in the
records of the depository.
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WHO MAY BECOME A MEMBER
CO. AS A MEMBER OF ANOTHER CO. -
1) A Subsidiary Co. cannot become a Member of
its Holding Co.
2) A Co. cannot become a member of itself.
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WHO MAY BECOME A MEMBER
Partnership Firm (PF) as a Member
PF is not a legal person, hence it cannot become
a member of any company.
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WHO MAY BECOME A MEMBER
Minor as a member
A member who is not sui juris
e.g., a minor, is wholly incompetent to enter into
a contract and as such cannot become a member of
a Co.
Section 3 of the Indian Majority Act, 1785, a minor is a person who has not attained
the age of 18 years.
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WHO MAY BECOME A MEMBER
Government as Member
Under Article 299 of the Constitution, all contracts for
and on behalf of the GOI / State Govts. are required to
be in the name of the President of India / Governor
of the State.
Generally they appoint a representative.
Such representative will have all the rights and
powers as the President or the Governor could exercise
as member of the Co.
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WHO MAY BECOME A MEMBER
Foreigner as Member
Can become a member subject to the provisions of
FEMA, 1999.
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MINIMUM & MAXIMUM NO. OF MEMBERS OF A
COMPANY
Private Company Public Company
Minimum No. of
Members
2 7
Maximum No. of
Members
50
(excluding the Present
and Past Employees
Members)
No Limit
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CESSATION OF MEMBERSHIP
A person ceases to be a member of a Co., when his
name is removed from register of members,
which may occur in following situations:
1) He transfers his shares to another person;
2) His shares are forfeited by the Co.;
3) His shares are sold by the Co. to enforce a lien;
4) He dies;
5) He is adjudged insolvent;
6) Buy Back of shares by the company;
7) Share warrants have been issued;
8) Redeemable Pref. Shares are redeemed;
9) The member is a Co., which is being wound up.
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RIGHTS OF MEMBERS
Right to receive copies of :
1) Balance Sheet and Profit and Loss Account;
2) Notices of the General Meetings;
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RIGHTS OF MEMBERS
Right to inspect Statutory Registers/Returns & get
copies:
1) Debenture Trust Deed;
2) Register of Charges;
3) Register of Members and Debenture holders;
4) Shareholders Minute Books;
5) Register of Directors;
6) Register of Director Shareholdings
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RIGHTS OF MEMBERS
Other Rights:
1) To attend the Shareholders Meetings;
2) To exercise Voting Rights either personally or through
proxy;
3) To receive Share Certificates;
4) To Transfer Shares
5) To receive dividends;
6) To appoint Directors;
7) To receive Right or Bonus Shares;
8) To share surplus assets on winding up;
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LIABILITY OF MEMBERS
A member is liable to pay the nominal value of the
shares he holds in a company as and when called up
by the company.
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DIRECTORS OF A COMPANY
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DIRECTORS?
On Incorporation, a Co. becomes a legal person.
In order to run a co. & to achieve its objects as
enshrined in MOA, it has to necessarily depend
upon an agency, known as BOD.
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DIRECTORS?
Director :
Cos. Act defines a director as including any person
occupying the position of a director by
whatever name called.
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TYPES OF DIRECTORS
Directors
Executive Non-Executive
OR OR
Inside Outside
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DIRECTORS?
Executive or Whole Time or Inside Director
Those Directors who are in the employment of the
Co. and also on the Board of the Company.
Eg., Managing Director, Whole Time Director, Director
(Finance), Director (Technical).
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DIRECTORS?
Non-Executive or Part Time or Outside
Director
Who are not in the employment of the Co. and
hence not involved in the day to day working
of the Co.
Eg., Professional Director, Nominee Director,
Government Director.
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TYPES OF DIRECTORS
Inside Directors
Whole Time Managing Director
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DIRECTORS?
Whole Time Director:
Whole Time Employment of the Co.
Managing Director:
Entrusted with substantial power of management
which would not otherwise be exercisable by him or
other Ordinary Directors.
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DIRECTORS?
Rule pertaining to MD or WTD:
Every Public Company having a Paid Up Share
Capital of Rs. 5 Crores or more must appoint a
MD or WTD.
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TYPES OF DIRECTORS
Outside Directors
Nominee Government
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DIRECTORS?
Nominee Director
Appointed by Financial Institutions or Banks which
extend term loan or working capital facility;
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DIRECTORS?
Government Director: For eg., Satyam
Appointed by the CG;
To prevent the affairs of the Co. being conducted :
1) In a manner which is oppressive to any member
of the Co. or
2) In a manner which is prejudicial to the interest
of the Co. or to public interest.
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TYPES OF DIRECTORS
Non Executive or Outside Directors
Independent Non Independent
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DIRECTORS?
Independent Director
Director is not related or connected to the company:
Major shareholder;
Creditor
Relative of the promoter / Director / Senior Executive
Major customer
Major supplier
Past Employee of the Company
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DIRECTORS?
Non - Independent Director
Director is related or connected to the company.
http://www.tatasteel.com/about-
us/management/board-of-directors.asp
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DIRECTORS?
Minimum No. of Directors:
Public Co. : 3
Private Co. : 2
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DIRECTORS?
Maximum No. of Directors:
No limit.
Generally fixed by the AOA of the Co.
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DIRECTORS?
Director Identification Number (DIN)
http://www.mca.gov.in/MCA21/index.html
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QUALIFICATION TO BE A DIRECTOR
The Act does not lay any qualifications for a person
to be appointed as a Director of a Co.
However, it mentions some disqualifications of
Director:
i. Unsound mind;
ii. Un-discharged insolvent;
iii. Convicted by court of moral turpitude for 6 months;
iv. Co. has not filed the Annual A/C and AR for continuous 3 years
or failed to repay the deposit, interest or dividend or redeem
debentures on due date and 1 yr has elapsed.
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QUALIFICATION SHARES
No statutory requirement that a Director must hold
qualification shares in the Co. in which he is a
Director.
However, if the AOA provides for share qualification,
then he has to take shares.
Infosys MOA.pdf
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RESTRICTION ON NO. OF DIRECTORSHIP
A Director shall not hold directorship in more
than 15 companies.
Directorship of following Co. shall be excluded for
the purpose of calculating the 15 Cos. limit:
1) A Private Co.;
2) Unlimited Co.;
3) Association not for profit (Section 25 Cos.);
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h
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Appointment of Directors
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APPOINTMENT OF DIRECTORS
Methods of Appointment of Directors
By AOA By Shareholders in AGM By BOD By CG By Third Parties
Additional Director Casual Vacancy Alternate Director
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APPOINTMENT OF DIRECTOR
By AOA:
First Directors who assume office from the DOI
and are named in the AOA.
AOA.pdf
Wipro.pdf
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APPOINTMENT OF DIRECTOR
By Members in General Meeting:
2/3
rd
of the Directors shall be directors who will retire
by rotation.
1/3
rd
of the Directors can be non-rotational
Directors, (like, Nominee Director, Government Director, Managing
Director, Whole Time Director, etc.) Infosys MOA.pdf
1/3
rd
of the aforementioned 2/3
rd
shall retire at
every AGM. Wipro AGM Notice.pdf
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APPOINTMENT OF DIRECTORS
By Board of Directors
Additional Director Casual Vacancy Alternate Director
Infosys MOA.pdf
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APPOINTMENT OF DIRECTOR
Additional Director
Board may appoint additional Directors.
As per the requirement (work load, additional
expertise).
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APPOINTMENT OF DIRECTOR
Casual Vacancy
If the office of any director appointed by the
company in General Meeting is vacated before
his term expires in the normal course, the
vacancy may be filled by the BOD.
Eg. Death, Resignation, Disqualification.
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APPOINTMENT OF DIRECTOR
Alternate Director
Director appointed to act for a Director during his
absence for a period of not less than 3 months
from the state in which meetings of the Board are
ordinarily held.
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APPOINTMENT OF DIRECTOR
By Central Government: For eg. Satyam
CG may appoint Director so as to effectively
safeguard the interest of the
1. Company; or
2. Its Shareholders; or
3. The Public Interest;
and to prevent mismanagement or oppression.
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APPOINTMENT OF DIRECTOR
By Third Parties (Nominee Director):
Financial Institution, Banks or other Lenders
nominate a Director to represent their interest on the
Board.
Infosys MOA.pdf
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REMOVAL OF DIRECTORS
Removal of Directors
Two ways in which Directors can be removed
By the Shareholders By Central Government
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REMOVAL OF DIRECTOR
By Shareholders
Exception:
1. Directors appointed by Central Government;
2. Nominee Directors
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REMOVAL OF DIRECTOR
CG shall remove the Director, where it is of an
opinion that: For ex. Satyam
1. He is guilty of fraud/persistent negligence, or default
in carrying out his obligations under the law or
breach of trust;
2. Business of the Co. is not conducted with sound business
principles;
3. Business is being conducted in a manner which may cause
serious injury to the trade/industry.
4. Business is conducted with intent to defraud creditors,
members or for a fraudulent or unlawful purposes.
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REMUNERATION OF DIRECTORS
Overall Ceiling of Remuneration to be paid by
a Co. to all its Directors :
11% of the Net Profits of the Co.
I
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REMUNERATION OF DIRECTORS
Director who is NED shall be paid a total
remuneration which shall not exceed:
1. 1% of NP of the Co., if the Co. has a WTD or
MD;
2. 3% of NP of the Co., if the Co. has no WTD
or MD;
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REMUNERATION OF DIRECTORS
Director who is a ED shall be paid a total
remuneration which shall not exceed:
1. 5% of NP of the Co., to one such WTD or MD;
2. 10% of NP of the Co., to all the WTD or MD
together;
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REMUNERATION OF DIRECTORS
Sitting Fees:
1. The fees payable to a Director for attending
Meeting of the Board.
2. Sitting fees is payable only to NED.
Sl.
No.
Criteria Amt. per meeting
per Director
1. Co. having a paid up share capital &
free reserves of Rs. 10 Cr. or more
Rs. 20,000
2. Co. having a turnover of Rs. 50 Cr. or
more
Rs. 20,000
3. Other Cos. Rs. 10,000
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S
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THANK YOU
I
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