RECAP

IN PREVIOUS LECTURE WE HAVE LEARNT

1. REGISTERED OFFICE
• Official address of an incorporated company where a company
receives office correspondences and formal notices
2. PROMOTERS
• The one who undertakes to form a company with reference to
a given object and to set it going
3. CRO
• Company registration offices for the purpose of incorporation
of companies
 COMPANY

PROSPECTUS
.
 PROSPECTUS
COMPANIES ORDINANCE, 1984 DEFINITION:
Prospectus means any document described or issued as
prospectus and includes
• any notice, circular, advertisement or any other
communication, inviting offers from the public for the
subscription or purchase of any shares in or debentures of,
body corporate, inviting deposits from the public other than
deposits invited by a banking company or a financial
institution approved by the Federal Government whether
described as prospectus or otherwise.
 PROSPECTUS
MEANING:
• Company prospectus is released by company to inform
the public and investors of the various securities that are
available. These documents describe about mutual
funds, bonds, stocks and other forms of investments
offered by the company. A prospectus is generally
accompanied by basic performance and financial
information about the company.
• Prospectus is a formal legal document, which is required
by and filed with the SECP that provides details about an
investment offering for sale to the public, it should
contain the facts that an investor needs to make an
informed investment decision
 PROSPECTUS
CONCLUSION:
Prospectus is a mandatory document for limited organization
to commence their business, but its complicated
procedure delays the operation of any business,
therefore a no. of organizations hesitate to issue
Prospectus to general public for subscription of share
capital & Debenture.
 PROSPECTUS
WHICH COMPANIES ARE REQUIRED TO ISSUE PROSPECTUS
• Every public listed company who intends to offer shares
or debentures of the company to the public.
• Every private company who ceases to be a private
company and converts into a public company and intends
to offer shares or debentures of the company to the
public.
 CONTENTS OF PROSPECTUS
1. The contents of the Memorandum with the particulars of
signatories and number of shares subscribed by them.

2. The number and value of shares.

3. Description of business to be undertaken and its prospects.

4. Any provision in the articles relating to remuneration of

directors and chief executives.

5. Particulars of the present and proposed directors, chief

directors, managing agents and secretary.
 CONTENTS OF PROSPECTUS

6. The amount of minimum subscription.

7. The date and time of the opening and closing of the
subscription list.
8. The amount payable on application for each share.
9. The number, description and amount of share capital issued
within the two preceding years along with the amount of
premium or discount, if any.
10. Name of the underwriters, if any along with opinion of directors
as to financial soundness of underwriters.
 CONTENTS OF PROSPECTUS

11. The name and address of auditors and legal advisors.

12. The amount of preliminary expenses.
13. The right of voting at meeting s of the company.
14. Particulars of capitalization of any reserves or profits if any.
15. Particulars of surplus on revaluation of the assets and the
manner in which such surplus has been applied, adjusted or
treated.
 TYPES OF PROSPECTUS

• ABRIDGED PROSPECTUS.

• DEEMED PROSPECTUS.

• SHELF PROSPECTUS.

• RED HEARING PROSPECTUS

 REQUIREMENTS OF PROSPECTUS
1. Prospectus must be dated i.e. publication date. (Sec. 52)
2. It must include an auditor’s report on last five years profit and loss account
and on balance sheet at last date on which accounts were prepared being a
date not more than 120 days before the date of issue of the prospectus.
3. It must be issued/published not less than seven or more than thirty days
before the subscription date. (sect.53(2))
4. If prospectus includes a statement made by an expert, the expert must not
be engaged or interested in the formation or promotion or in the
management of the company. A written consent of the expert should also be
obtained before the issue of prospectus with the statement. (sect. 54 & 55)
5. In case of a listed company approval of the SECP must be obtained within
sixty days before the date of issue of prospectus. However, Commission may,
impose such conditions as it may deem necessary. (sect 57 (1) & (2))
 Cont’d
6. A copy of prospectus must be sent to the registrar before the issue of
prospectus. (sect 57 (3))

7. Registrar shall not register the prospectus unless the above

requirements have been complied with.

8. A sufficient number of copies of the prospectus issued under sub-section

(1) of section 53 shall be made available at the registered office of the
company with the stock exchange at which the company is listed or is
proposed to be listed and with the bankers to the issue and the
prospectus in its full text or in such abridged form as may be prescribed
shall be published at least in one Urdu and one English daily newspaper
having circulation in the province where stock exchange is situated at
which the company is listed. (sect 53 (1A))
 EXPERTS OPINION

1. Expert includes an engineer, a valuer, an accountant, or every

other person whose profession gives authority to any
statement made by him.

2. Experts written consents are required to be obtained which

are not withdrawn before the issue of prospectus.

3. Statement is required to be included in the prospectus that

experts have given and not withdrawn their consents.

4. An expert shall not be a person engaged or interested in the

formation or in the management of the company.
 DOCUMENTS REQUIRED
DOCUMENTS REQUIRED TO BE ATTACHED TO THE PROSPECTUS:

1. Consent of expert required under section 55; and

2. In the case of a prospectus issued generally;

a copy of contracts regarding remuneration of Chief Executive etc and in case
of an unwritten contract, a memorandum thereof, and
a report from the auditors regarding any adjustments to assets and liabilities
of the company and reason thereof.
 LIABILITIES ARISING OUT OF UNTRUE
STATEMENT
When there is any untrue statement in the prospectus,
there arises two types of liabilities:

• Civil Liability
• Criminal Liability
 LIABILITIES FOR MISSTATEMENT IN
PROSPECTUS
CIVIL LIABILITY FOR MISSTATEMENT IN PROSPECTUS:

No person shall be liable for compensation of loss or damage if he proves that:

1. He withdrew his consent to become the director before the issue of

prospectus; or
2. The prospectus was issued without his knowledge; or
3. After the issue of prospectus and before allotment , he became aware
that the prospectus was untrue and withdrew his consent and gave a
public notice of the withdrawal; or
4. As regards the untrue statement, the expert believes on reasonable
grounds that the statement was true, correct and fair representation.
 Cont’d
CIVIL LIABILITY OF EXPERT (SECTION 59) :

Experts civil liability is limited to the opinion given by him in the

prospectus. He is not considered to be a person who has authorized for
issue the prospectus. The expert would not be held liable if he proves
any of the following,

1. That he had given the consent for the inclusion of his opinion in the
prospectus but he withdrew the consent before the prospectus was
filed for registration with the registrar.
2. That after registration of prospectus and before allotment of shares he
became aware of any untrue statement in his opinion and he withdrew
his consent and gave a reasonable public notice of such withdrawal.
3. That he believed up to the date of allotment that the statement was
true to the best of his competence.
 Cont’d
CIVIL LIABILITY OF DIRECTORS (SECTION 59)

Directors’ civil liability expands to the whole of the issue as those are the
persons who have authorized for issue the prospectus. The directors shall
be responsible even for the untrue statement made by the experts in the
prospectus. A director can avoid civil liability if he proves any of the
following,

1. That the director had withdrawn his consent to become the director
and the prospectus was issued without his authority.
2. That the prospectus was issued without his knowledge and when he
became aware of the issuance of prospectus; he gave a reasonable
public notice of the fact.
 Cont’d
CIVIL LIABILITY OF DIRECTORS (SECTION 59)

3. That he became aware of the untrue statement after issuance of

prospectus and he gave a reasonable public notice regarding such
untrue statement.

4. That the statement was true copy or true extract from the opinion
made by any expert and the directors believe that the expert had
sufficient knowledge and ability to express the opinion.

5. That the statement was true copy or true extract taken from any public
official document.
 CRIMINAL LIABILITY (SECTION 60)

Where a prospectus includes any untrue statement,

• every person who signed or authorized the issue of
prospectus shall be punishable
– with imprisonment for a term which may extend to TWO
years or a fine which may extend to TEN THOUSAND rupees,
or BOTH.
 AVAILABLE DEFENCES
DEFENCES AVAILABLE AGAINST CIVIL AND CRIMINAL LIABILITY
1. A person is not liable for civil or criminal liability if he proves that:
• the untrue statement was immaterial
• he had reasonable ground to believe that the statement was
true
• as regards any matter not disclosed he proves that he had no
knowledge thereof
• non-compliance arose from an honest mistake of fact on his
part
• the prospectus was issued without his knowledge or consent
and on becoming aware of its issue, he forthwith gave a
reasonable public notice of the fact
• after the issue of prospectus but before the allotment he
withdrew his consent and he gave a reasonable public notice
2. Experts, bankers etc. are not liable merely on the basis of their
consents unless any material misstatement is there on their part.
 PENALTY

PENALTY FOR FRAUDULENTLY INDUCING PERSONS TO INVEST

MONEY

Any person who induces any other person by making false

statement to make investment in shares or debentures of a
company shall be liable to imprisonment up to three years or
with a fine up to Rs 20,000 or with both
 UNAUTHORIZED PERSONS
.

FOLLOWING PERSONS SHALL NOT BE DEEMED TO HAVE

AUTHORIZED THE ISSUE OF PROSPECTUS:

1. An expert who has given his consent to issue prospectus with

his statement and
2. The auditor, legal advisor, attorney, solicitor, banker and
broker.
 OFFER FOR SALE DOCUMENTS
(SECTION 61 & 62)
1. Owner of 10 percent or more shares of the company can make an offer
to the general public for divesting his shares to the public with prior
approval of Commission.
2. Such offer can be made only by issuing a document in the nature of
prospectus. This document is named as “Offer for Sale Document” and
all the provisions of law as applicable to the prospectus apply to this
document as if it is a prospectus issued by any company.
3. The person making the offer shall be considered to be a director of the
company for the purpose of this document.
4. The directors of the company shall be responsible to the same extent in
case of this offering document as they are responsible in case of a
prospectus.
 GENERAL PROVISIONS REGARDING
PROSPECTUS (63 & 65)
1. Untrue statement in context of prospectus includes a statement which in
misleading in the context in which it is used in the prospectus. If the
omission of any statement from a prospectus can be concluded as
misleading; then the prospectus would be considered as a prospectus
having untrue statement. (section 63 (1))

2. General public in context of offer for sale or invitation for subscription of

shares includes any section of public, including the existing shareholders
or debenture holders of the company. However section of the public will
not be taken as public when it is assured that the shares or debentures
shall not be available for subscription by anybody other than those person
to whom offer is made. Also section of public would not be considered as
public when the offer can be proved to be domestic concern of the person
making the offer. (section 65(1) & (2))
 STATEMENT IN LIEU OF PROSPECTUS
1. It is a statement which is delivered by a company, having share capital to
the Registrar for registration, at least three days before the first allotment
of shares or debentures under the following conditions:

• Where a company does not issue prospectus; or

• Where a company has issued a prospectus but has not proceeded to allot
any of its shares offered to the public for subscription.

2. SILOP is to be signed by every person who is named therein as a director

or a proposed director of a company.

3. Where a company which is required to submit a SILOP does not comply

with the requirement, it can not allot shares. (section 69(1))
 CONTENTS OF STATEMENT IN LIEU OF
PROSPECTUS
1. The name of the company.
2. The nominal share capital of the company divided into number of ordinary
shares and par value per share.
3. Description of the business to be undertaken and its prospects.
4. Names, addresses, description and occupations of the proposed or
appointed directors , chief executive, managing agent and secretary of the
company.
5. Provisions regarding the appointment and remuneration of the above
officers of the company.
Cont’d

5. Voting rights in the meetings of the company.

6. Numbers and the amount of shares and debentures agreed to be issued.
7. Names, occupation and addresses of vendors of property purchased or
proposed to be purchased by the company.
8. Amount payable in cash, shares or debentures, to each vendor of the
property.
 DIFFERENCES B/W
PROSPECTUS AND SILOP
PROSPECTUS : STATEMENT IN LIEU OF
PROSPECTUS:
1. Filed by a public listed company.
2. Has been defined in definitions 1. Filed by a public unlisted
Sec. 2 (29) company.
3. Submitted to registrar, 2. Has NOT been defined in
commission and shareholders. definitions.
4. Is a document containing an 3. Submitted only to registrar.
advertisement for invitation of 4. Is not an invitation of
subscription from the public. subscription.
 DIFFERENCES B/W
PROSPECTUS AND SILOP
PROSPECTUS : STATEMENT IN LIEU OF PROSPECTUS:

5. Approval of commission must be 5. Is not a kind of advertisement for

obtained within 60 days before the invitation of subscription.
issue of prospectus.
6. No prescribed form is specified in 6. Is filed on prescribed form.
this Ordinance.
7. No prospectus shall be issued 7. It is filed with the registrar
unless before the date of its concerned at least 3 days before
publication, a copy signed by the the first allotment of shares
directors or their agent has been
delivered to the registrar
 UPCOMING LECTURE

1. SHARE
2. TYPES OF SHARES
3. SHARE CAPITAL
4. CLASSES AND KINDS OF SHARE CAPITAL