Page 95 - DCOM106_COMPANY_LAW

Company Law

Notes An offer to shareholders of an existing company (say ‘A’) of shares in a new company (say
‘B’) in exchange for existing shares of A, is not an offer to the public. (Government Stock
and Other Securities Investment Co. vs. Manila Rail CO. [1897] AC 81).
Where an invitation is made by the management of a company to selected persons for
subscription or purchase by the persons receiving the offer or invitation, the shares or
debentures and such invitation or offer is not calculated directly or indirectly to be availed
of by other persons, such invitation or offer shall not be deemed as prospectus [s.67(3)]. In
Nash vs. Lynd (1929) AC 158, a document marked ‘strictly confidential’ containing
particulars of a proposed issue of shares was sent by the managing director to a co-director
and through him passed on privately to a small circle of friends of the director. The House
of Lords held that it was not a prospectus, as there had been no issue to the public.

However, an invitation to subscribe to its shares by a company (other than a non-banking
finance company or a public financial institution) even though meant for subscription/purchase
only by those who receive it, shall be considered as invitation to public if it is made to fifty
persons or more. Thus, a private placement of its shares by such a company comes under the
purview of ‘public issue’ if invitation is made to fifty or more persons.
Self Assessment

Fill in the blanks:
1. A prospectus, as per .................................., means any document described or issued as
prospectus and includes any notice, circular, advertisement.
2. The process involves ..................................to an Issue House who, in turn, will issue
advertisement offering shares for sale.

3. In case a document is deemed as prospectus, then it must contain the following information
in addition to the information required to be stated in prospectus ..................................
4. The word .................................. includes any section of the public (s.67).

7.2 Contents of Prospectus

Section 56 lays down that the matters and reports stated in Schedule II to the Act must be
included in a prospectus. The format of a prospectus is divided into three parts.
In the first part, brief particulars are to be given about matters mentioned below:

1. General Information: Under this head, information is given about:
(i) Name and address of registered office of the company.
(ii) Name (s) of stock exchange (s) where application for listing is made.
(iii) Declaration about refund of the issue, if minimum subscription of 90 per cent is not
received within 90 days from closure of the issue.
(iv) Declaration about the issue of allotment letters/refunds within a period of 10 weeks
and, interest in case of any delay in refund, at the prescribed rate, under s.73.
(v) Date of opening of the issue.
(vi) Date of closing of the issue.
(vii) Name and address of auditors and lead managers.

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