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    Significance and Importance of Prospectus

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    qaisar shahzad
    Shares represent ownership in a company, and there are two main types: ordinary shares which receive dividends only after preference shareholders and have voting rights, and preference shares which have priority for dividends and may not have voting rights. A prospectus provides important financial and ownership information to potential investors about a company issuing shares, while a statement in lieu of prospectus is filed for companies raising capital without a public offering.

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    Significance and Importance of Prospectus

    Uploaded by

    qaisar shahzad
    93 views5 pages
    Shares represent ownership in a company, and there are two main types: ordinary shares which receive dividends only after preference shareholders and have voting rights, and preference shares which have priority for dividends and may not have voting rights. A prospectus provides important financial and ownership information to potential investors about a company issuing shares, while a statement in lieu of prospectus is filed for companies raising capital without a public offering.

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    Shares represent ownership in a company, and there are two main types: ordinary shares which receive dividends only after preference shareholders and have voting rights, and preference shares which have priority for dividends and may not have voting rights. A prospectus provides important financial and ownership information to potential investors about a company issuing shares, while a statement in lieu of prospectus is filed for companies raising capital without a public offering.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    93 views5 pages

    Significance and Importance of Prospectus

    Uploaded by

    qaisar shahzad
    Shares represent ownership in a company, and there are two main types: ordinary shares which receive dividends only after preference shareholders and have voting rights, and preference shares which have priority for dividends and may not have voting rights. A prospectus provides important financial and ownership information to potential investors about a company issuing shares, while a statement in lieu of prospectus is filed for companies raising capital without a public offering.

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    Significance and Importance of Prospectus:

    A prospectus has significance and importance by virtue of section 92 of the company’s ordinance.

    This section states that no person can issue prospectus unless it is registered by the registrar and no
    registrar can register prospectus unless it complies with the statutory provisions. As to

    a) Contents
    b) Matters and Reports
    c) Signature
    d) Consents

    Contents of Prospectus:
    Prospectus is the very basic document of public limited company. As we know that public limited
    company get finance from general public, and general public invest in a company in the form of buying
    bonds and shares of company. But everyone shall put his/her investment after getting some basic
    information of the company. So, contents of prospectus provide that basic information of company an
    investor want to know before investment. It includes

    1. Who are the directors and what benefit they get from the company
    2. Profit made by promoters
    3. Capital required by the company in cash
    4. Past financial records of the company
    5. Preliminary contracts, commission and preliminary expenses
    6. Voting and dividend rights of each clause of shares

    Matters and Reports of prospectus


    The following matters are to be stated in the prospectus:

    1. General information
    2. Memorandum of association
    3. Directors, CEO, Secretary
    4. Particulars of issue to public
    5. Meetings and voting
    6. Financial matters

    01 General Information:
    1. Date and time of opening and closing of subscription list
    2. Names and address of auditors and legal advisers
    3. Names of underwriters along with the report of directors in respect of the efficiency of
    underwriters and amount paid as commission
    4. Preliminary expenses
    5. All expenses of issue
    6. Amount given within two preceding years to promoters
    7. In case of an existing company the length of time during which the business has been carried on
    8. Pending legal proceedings other than of routine nature

    02 Memorandum of Association
    1. Names and addresses of signatories and number of shares held by them
    2. Number of parties who have claims of right in the profits of company
    3. Description of business

    03 Directors, CEO, Secretary


    1. Provisions of articles regarding the remuneration of Directors, CEO and Secretary
    2. Procedure for the appointment of above mentioned authorities
    3. Interest of directors, chief executive and secretary other than remuneration

    04 Particulars of Issue to public


    1. Minimum subscription- purchase price of property, preliminary expenses, repayment of money
    borrowed, working capital
    2. Amount provided for such matters other than issue of shares
    3. Amount payable along with application of share
    4. Substance of contract in which someone else has preference over newly subscribers
    5. Particulars of all shares issued within last two years regarding price, number of shares,
    subscribers and premium on shares etc
    6. Information about those shares which were issued by company other than cash, purpose of
    issue and basis of compensation

    05 Meeting and voting


    1. Restrictions in articles in respect of
    2. Right to attend meeting
    3. Right to speak in meeting
    4. Right to vote in meeting on the matters
    5. Right to transfer of shares
    6. Director’s powers of management
    7. Right on capital and right on profit

    06 Financial Matters
    1. Particulars of any reserves or profits capitalized
    2. Surplus from revaluation of assets
    3. Reasonable time for inspection of financial reports
    4. Principal purpose for utilization of net proceeds of issue
    5. Summary of last three financial years earnings

    The section under discussion is matters and reports and we have learned all details about the matters of company stated
    in the prospectus. So, now we shall little discuss about the reports of company. When we say reports we mean audit
    reports by an external auditor so auditor shall provide report in following situations

    1. Report on the financial statements of company if it has no subsidiary


    2. Reports on the financial statements of company and subsidiary of company if it has subsidiary
    company
    3. Report when proceed of shares is applied in the purchase of business
    4. Reports when proceed of shares is applied in the purchase of shares of any other company.

    Liability of directors regarding Prospectus


    All directors are liable and responsible for the information provided in the prospectus. However, if the
    director and promoter prove one of the following situations can save him/her self from liability.

    1. Before the issue of prospectus he withdrew his consent to act as director


    2. Prospectus was issued without his knowledge and on becoming aware he gave immediately
    public notice
    3. He had reasonable grounds to believe that the statement was true up to the time of allotment
    4. This statement was provided by an expert having proper knowledge on the issue and statement
    was not personal
    5. Statement was based on the documented proof and statement is not wrong, maybe someone
    had misunderstanding in reading the statement.

    Statement in lieu of prospectus:


    A Statement in lieu of prospectus may be defined as “a public document prepared in prescribed
    form by every such company which does not issue a prospectus.

    Statement in lieu of prospectus is required where the company is able to raise the capital without
    inviting the public to subscribe.

    Features of Statement in lieu of prospectus:


    a) Statement in lieu of prospectus is filed by a public company which doesn’t invite
    subscription from the general public and arranges the minimum subscription from its own
    sources.
    b) Filing a statement in lieu of prospectus is pre-requisite for obtaining certificate for
    commencement of business.
    c) Statement in lieu of prospectus is filed with the registrar at least 3 days before the
    allotment of shares.
    d) Return of allotment of minimum subscription is to be filed within 30 days of allotment.
    e) Certificate from schedule bank showing deposit of minimum subscription is to be
    provided.
    f) Statement in lieu of prospectus must be accompanied with articles of association and
    other documents required by the registrar.

    Consequences of misstatement
    The companies ordinance is silent as to effect of misstatement in a Statement in lieu of
    prospectus, but it would appear that if a person applying for shares inspects the Statement
    in lieu of prospectus becomes the basis of contract and if contains a false statement a
    person applying for shares can claim damages for compensation.
    And if a person willfully makes misstatement in the Statement in lieu of prospectus shall
    be guilty of criminal offence.
    There is need to make one point clear that an outsider later on if read out the Statement in
    lieu of prospectus and invest in the company on the basis of this document and later on
    finds that there was wrong information in the Statement in lieu of prospectus cannot
    make any claim.

    Difference between Prospectus and Statement in lieu of prospectus


    1. Prospectus has been defined in the companies’ ordinance but Statement in lieu of prospectus is
    not defined in the companies’ ordinance.
    2. Prospectus is invitation to general public but Statement in lieu of prospectus is not an invitation to
    general public.
    3. Directors and promoters are liable to general public for misstatement in prospectus but not liable
    to general public in case of misstatement in Statement in lieu of prospectus.
    4. Prospectus is general and free there is no specified form to make prospectus but Statement in lieu
    of prospectus must be made according to the forms specified by the registrar.
    5. Prospectus may be in the form of booklet and circular but Statement in lieu of prospectus is just a
    statement along with required documents.
    6. Prospectus is not obligatory for company to issue but if a public company not issuing prospectus
    has obligation to issue Statement in lieu of prospectus.

    1. Define share

    2. Types of shares

    3. Difference between ordinary share and preference share

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