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Unit 7: Prospectus

In case a document is deemed as prospectus, then it must contain the following information in Notes
addition to the information required to be stated in prospectus under s.56:
1. The net amount of consideration received or to be received, by the company in respect of
the shares or debentures to which the offer relates; and
2. The place and time at which the contract under which the said shares or debentures have
been or are to be allotted may be inspected.
For purposes of registration of a prospectus under s.60, the persons making the offer of sale to
the public are to be deemed as directors of the company.

Where the person making the offer is a company or a firm, the documents (i.e., deemed
prospectus) must be signed by at least two directors or one-half of the partners as the case may
be.
Circumstance under which a Document containing an offer for Sale of Shares or
Debentures be not deemed to be a Prospectus

Whether a document containing an offer for sale of shares or debentures is a prospectus or not,
depends upon whether it extends an invitation to the public to subscribe or not. The prima facie
test of ‘public offer’ or ‘public invitation’ is whether the terms of the offer or invitation are such
that despite its limited circulation, it is open to any person who so chooses to bring his money
and apply for shares in response to the invitation. If the offer or invitation is so open, then it
constitutes a ‘public offer’. If, on the other hand, an offer or invitation can be accepted only by the
person to whom it is made and none other, then it will not be deemed to be an offer or invitation
to the public.
The word ‘public’ includes any section of the public (s.67). It may, thus, include all registered
medical practitioners in Delhi, all advocates of High Court of Delhi, all Englishmen living in
India.

What does not constitute an offer to the Public or Circumstances under which a
Document containing an offer for Sale of Shares or Debentures be not deemed to be
a Prospectus

However, in the following cases, the document inviting subscription to shares or debentures of
a company shall not be deemed as invitation to the public and hence, shall not be a prospectus:

A document issued by a company by way of invitation to existing members or debenture
holders, to subscribe to shares or debentures by way of ‘right’ is not a prospectus [s.56(5)].
An invitation shall not be an invitation to the public if it cannot be calculated to result,
directly or indirectly in the shares or debentures becoming available for subscription or
purchase by persons other than those receiving the invitation. Thus, it will not be an
invitation to public where A receives the invitation, but B who is a friend of A does not
receive the invitation but desires to subscribe, but the company does not accept his offer,
as he (B) was not invited to make the offer. It was A, and A only for whom the invitation
to subscribe to the shares was meant; no one else (whether B or not) could not have
responded to the invitation extended to A only. On the other hand, it will become an
invitation to the public where his (B’s) or anyone’s offer shall be accepted by the company.

Thus, offering of shares to a director of Kith and Kins is not an invitation to the public to
buy shares [Rattan Singh vs. Moga Transport Co. Ltd., supra].

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