PROSPECTUS

Definition :
Prospectus means any document described or issued as a prospectus &includes any notice , circular , advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription of shares or debentures of a co.

Dating : must be dated Signing : a. Intended co proposed directors must be signed. b. Existing co every person who is named as director. Registration : a. must be registered on or before the date of publication. b. penalty for non- registration: Rs.50,000/- .

CONTENTS OF PROSPECTUS
Matters to be stated and reports to be set out in Prospectus. Important contents of prospectus are as follows Part I of schedule II :

General Information Capital structure of the co Terms of the present issue

Particulars of the issue Co , Management and Project

Part II of schedule II : General Information Financial Information Statutory and other Information

MISSTATEMENTS IN PROSPECTUS & THEIR CONSEQUENCES

If there is any mis-statement of a material fact in a prospectus. OR If the prospectus is wanting in any material fact ,there may arisea. Civil Liability b. Criminal Liability

Civil Liability
I.

Remidies against the co

1. Rescission of the contract - He should apply for rescission - Gets back money paid by him with interest Case : Rex vs Lord Kylsant 2. Damages for deceit (MONEY,MENTAL STRAIN)

II. Remedies against the Directors , Promoters

and Experts 1. Liability for damages for misstatement in

prospectus 2. Liability under the General Law sec 17 of Indian Contract Act, 1872 for fraud

Criminal Liability
Every person who is authorized to issue prospectus is punishable with Imprisonment which may extend to 2 yrs or Fine with Rs.50,000/- or With Both

Statement In Lieu of Prospectus

Where a public co does not invite public to subscribe for its shares , need no issue prospectus to public, In such case the promoters are required to prepare a draft prospectus known as a statement in lieu of prospectus which should contain the information required to be disclosed by Schedule III of the Act

SHARES
The capital of a co is divided into certain divisible units of a fixed amount. These units are called Shares.

Types of Shares :
There are 2 kinds of shares I. Preference shares II. Equity shares

PREFERENCE SHARES

They have a preferential right to be paid dividend during the life time of the co. They have a preferential right to the return of capital when the co goes into liquidation.

KINDS OF PREFERENCE SHARES :

1.

Cumulative Preference Shares Dividend goes on accumulating till it is fully paid off.

2. 3.

4.

5.

6. 7.

Non Cumulative Preference Shares Participating Prefrence Shares Entitled fixed rate of dividend + share in the surplus profits. Non Participating Preference Shares Only a fixed rate of dividend Convertible Prefrence Shares Convertible into equity shares Non Convertible Prefrence Shares Redeemable Prefrence Shares a. Articles should permit b. Can be redeemed only out of profit

EQUITY SHARES
Equity shares are those which are not prefrence shares.

DEBENTURES
A co needs money to finance its activities from time to time. a. A part their requirement is met by issue of shares. b. For the rest the co may resort to borrowing. The co borrows money by issue of debentures. Debenture is issued by the co and it is usually in the form of a certification which is an acknowledgement of indebtedness.

The debenture of a co are moveable property , transferable in the manner provided by the Articles. A debenture holder does not have any right to vote in the co meetings.
KINDS OF DEBENTURES :

Debentures may be of the following kinds

1. Bearer Debentures : Also known as Unregistered Debentures payable to its bearer. And also these are regarded as Negotiable Instruments.
2.

Registered Debentures : Payable to registered holder whose name appears both on certificate and in the cos register. They are transferable. Secured Debentures : Debentures which create some charge on the property of the co.

3.

Unsecured Debentures 5. Redeemable Debentures They may be redeemed after sometime. 6. Irredeemable or Perpetual Debentures There is no period fixed for repayment of the principal amount. 7. Convertible Debentures Can be converted into preference or equity shares. 8. Non Convertible Debentures They are to be duly paid as and when they mature.
4.

DIRECTORS

A co is an artificial person. It cannot act in its own person. It acts through the Directors. The Directors , who occupy very important position in the co , are considered to be the brain of a co. No body corporate , association or firm can be appointed director of a co.only an individual can be appointed as Director.

Number of Directors : Public co minimum 3 Private co minimum 2

First Directors Usually named in the article Not named subscribers appoint In the absence of (a) or (b) subscribers hold the office until directors are duly appointed.

APPOINTMENT OF DIRECTORS :
1.

2. Appointment of Directors by the co

In the case of a public co or a private co which is subsidiary of a public co at least 2/3rd of the total number of directors shall be liable to retire by rotation. Directors are appointed by shareholders in general meeting.
3.

Appointment of Directors by Directors