Page 258 - DMGT407Corporate and Business Laws

Unit 11: Prospectus, Shares and Share Capital

it does not amount to a public offer. The circular containing offer of rights shares is, Notes
therefore, not a prospectus.
2. The offering of shares to the kith and kin of a director is not an invitation to the public to
buy shares [Rattan Sigh v. Moga Transport Co. Ltd. (1959)]. Such an offer, therefore, shall
not be deemed as prospectus.

3. 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)].
However, this is in applicable in a case where the offer or invitation to subscribe for shares
or debentures is made to fifty persons or more. In Nash v. Lyne (1929), 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.
4. Where a new company, by a circular, offered to buy all the shares of two existing companies
and issued its own shares in exchange of those shares, it does not amount to an offer to the
public as it neither involves an offer for the purchase of shares for money, nor an invitation
for subscription of shares.
Is the issue of prospectus compulsory? When prospectus is not required to be issued? No,
issue of prospectus by a company is not compulsory in the following cases:
(i) A private company is not required to issue a prospectus.
(ii) Even a public company need not issue a prospectus if the promoters or directors feel
that they can mobilise resources through personal relationship and contacts. In such
cases, the company is required to file a statement called ‘statement in lieu of prospectus’
with the Registrar of Companies.
(iii) A company may issue any forms of application for shares or debentures accompanied
by a memorandum containing the prescribed salient features of prospectus (instead
of prospectus). However, in such a case, a copy of the prospectus must be made
available to any person on request [s.56 (3)].

(iv) Where the application form is issued in connection with a bona fide invitation to a
person to enter into an underwriting agreement with respect to the shares or
debentures (s.56 (3)].
(v) Where the application form is issued in relation to shares or debentures not offered
to the public [s.56 (3)].

(vi) Where the shares or debentures are offered to existing holders of shares or debentures
(i.e., rights issue) with or without the right of renunciation in favour of other persons
[s.56 (5)].
(vii) Where invitation to the public for subscription to the shares or debentures of a
company is made in the form of an advertisement, ordinarily called as “prospectus
announcement” [s.66].

11.1.16 Self Prospectus and Information Memorandum (Ss.60A and 60B)

Section 60A makes provisions for a self-prospectus in certain situation. A ‘shelf-prospectus’
means a prospectus issued by any financial institution or bank for one or more issues of the
securities or class of securities specified in that prospectus.

LOVELY PROFESSIONAL UNIVERSITY 251