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Unit 9: Prospectus

9.4 Listing of the Shares on a Stock Exchange Notes

Shares of a public company may be sold or purchased on stock exchange. But for this purpose the
company has to get permission from the stock exchange authorities. Section 73 provides that it is
necessary for every public company, before issuing shares or debentures for public subscription
by issue of a prospectus, to make an application for listing the security in one or more recognised
stock exchanges. This is known as listing of the shares. The information that permission has been
obtained from the stock exchange or that an application for getting permission has been made or
will be made, may be mentioned in the prospectus.

The eligibility criteria for listing of securities of a company is: (i) minimum issued equity capital
of a company should be ` 3 crores; and (ii) the minimum public offer of equity capital shall be
not less than 25% [Rule 19(2)].

For listing of its shares, the company has to comply with all the requirements of the Securities
Contracts (Regulation) Rules, 1957. Rule 19 (2) (b), requires that at least 25% of each class or kind
of securities issued by the company shall be offered for public subscription through newspaper
advertisement for a period not less than 3 days and that allotment to such applicants shall be
made fairly and unconditionally.

9.5 Structure of Share Capital

The amount of authorised capital and its subdivision into equity and preference share capital is

given in the Memorandum of Association which is prepared before the certificate of incorporation

is obtained. After obtaining the certificate of incorporation and before the issue of prospectus, the
Board of directors have to take a decision regarding the total amount of capital which is to be
raised by issue of shares and the kinds of shares to be issued. A company cannot issue capital
exceeding the authorised capital mentioned in the memorandum. How much capital should be
raised at a particular time? It depends upon a number of factors, such as the purpose for which
the capital is required (whether for acquiring fixed assets like plant and machinery, etc., or for

providing additional working capital); the alternative sources of raising capital (e.g., debentures,

public financial institutions and so on). The directors should also decide about the ratio of equity
to preference share capital. For certain purposes the Central Government has fi xed this ratio at
3:1. Also, the amount of capital in each category, i.e., equity and preference and the amount to be
called up at the time of application, allotment, etc., are to be decided. Also, the Board of directors
have to decide about the type of preference shares to be issued.

9.6 Time of Floatation

The Board of directors will then decide about the time of issue of prospectus. It is advisable to
consider the condition of the capital market, the investors’ mood, fiscal and monetary policies of

the Government and the state of business conditions before issuing a prospectus.

9.7 Definition of a Prospectus
A prospectus, as per s.2 (36), means any document described or issued as prospectus and
includes any notice, circular, advertisement or other document inviting deposits from the public
or inviting offers from the public for the subscription or purchase of any shares in or debentures
of a body corporate. Thus, a prospectus is not merely an advertisement; it may be a circular

or even a notice. A document shall be called a prospectus if it satisfies two things: 1. It invites
subscriptions to share or debentures or invites deposits. 2. The aforesaid invitation is made to
the public.

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