Chapter seven prospectus - PowerPoint Presentation

Slide1

Chapter seven prospectus

1. Definition and nature of Prospectus

Prospectus means any notice, circular, advertisement or other invitation offering to the public for subscription or purchase any shares or debentures of a company.

Prospectus is not an offer but a mere invitation to treat.

The objective of prospectus is to arouse public interest in the proposed company and induce the general public to buy its shares and debentures.Slide2

Contents of Prospectus(

i

)

Directors and auditors of the Company

 Names, occupations, postal address, directors’ qualification shares, directors’ remuneration and directors interest in the company’s promotion.

(ii)

Formation Expenses

 Benefits paid to promoters underwriting commission etc.

(iii)

Investor Information

The minimum subscription

The amount payable on application

The time of opening of the subscription lists

Voting and dividend rights attached to different classes of shares.Slide3

(iv)  

Company’s Business and Assets

-   Venders of property of the company

-   Amount paid for property bought or goodwill

-   Length of time business has been carried on.

4. Reports to be set out in Prospectus

The prospectus also contains reports such as:-

(

i

)  Auditor’s report showing profit and loss in each of the last five years, rates of dividend paid during the last five years, assets and liabilities at the date of last accounts and details relating to subsidiary companies

.Slide4

(ii) Where the proceeds of the issue are to be used to buy a business, a report by named accountants on profit and loss of the business for each of the last five years.

(iii) Where the proceeds of the issue are to be used to buy shares in any other body corporate, a report by named accountants on profit or loss of that body corporate for each of the last five years.Slide5

5. prospectus and disclosure

Information in prospectus must be true, accurate and give right picture of the company.

6

.

Effect of Disclosure

-The

prospectus should not contain any misrepresentation of material and misleading information.

-

The

subscriber may rescind if there is discovered misrepresentation of facts with following conditions:

When misrepresentation of facts influence the judgment of the subscriber. Slide6

It must have induced to shareholder to take shares

.

It must be untrue

The deceived shareholder is an

allottee

and he must have relied on the statement of the prospectus which means that he did not purchased shares in the open market.

The omission of material fact must be misleading before rescission is granted.Slide7

6. Right of rescission As soon as the subscriber get to know the misleading of the prospectus; the proceeding of rescission should start

.

Affirmation

Attempts to sell the shares, executes a transfer, pays calls or receive dividends and attends at general meeting of the company in person or by proxy

Unreasonable delay

Winding upSlide8

7. statement in lieu of prospectus

Statement in lieu of prospectus is required to be filed with registrar for registration on two occasion which are:

when public company arranges privately for its capital subscription.

when a

private company

becomes a

public company shall deliver to

the Registrar

a statement in lieu of

prospectus. Slide9

Form of statement in lieu of prospectusstatement

in lieu of

prospectus must be signed

by every person who is named therein as a director or a

proposed director

of the company or by his agent authorized in

writing and any allotment of shares before registration of statement in lieu of prospectus shall be void at the discretion of the applicant. The statement must be the form and contain the same information of prospectus.

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. stock exchange requirement

Stock exchange is a place where stocks or shares are bought and sold through stockbrokers.Slide10

Conditions required for the permission of dealing with stock exchange:

completion of agreement

history of the company

Company must be public company

Satisfaction of the council of stock exchange on share offered

Paying hearing fees and quotation fees

Copies of company’s articles Slide11

9. Underwriting commission

C

ompany pays certain commission to everyone who guarantees that the shares and debentures offered by the company will not be taken by the public but he will take it. The commission paid under this agreement is called underwriting commission. Underwriting commission has to fulfill the following conditions:

articles of the company authorizes the payment

it can not exceed certain amount on the price of the shares issued disclosure of amount and rate of the commission and number of the shares that the Slide12

underwriter has agreed to subscribe in the prospectus or statement in lieu of prospectus.

Brokerage

Company pays such brokerage as has been recognized as usual for the companies to pay to brokers.

B

rokerage is payable to a broker for services as a broker which means that he exercise brokerage as his profession. Slide13

Underwriters

Brokers

They

take up shares or debentures which is under-subscribed

They do not take any shares or debentures.

They get under writing

commission and only when the articles authorizes.

They get brokerage on those shares and debentures for which

they procure subscription. Brokerage is payable even if the articles are silent.

They entitled to

a certain underwriting commission.

They entitled to get as such brokerage as companies pay

t

.

Underwriting commission

is only payable on those shares and debentures offered to the public.

Brokerage is payable

only on those shares and debentures which subscription is procured.

Name, address and occupation of underwriters

has to be disclosed in prospectus

It

is a requirement to disclose the names and address of the brokerage.