Raising Capital: The Concept of Company Prospectus

Raising capital for a company is a pivotal task. A public company may raise its funds by inviting deposits by the issuance of prospectus or offering its share to the general public.

Raising Capital: Issuing of Company Prospectus

The main idea of issuing a prospectus is to facilitate the collection of finance for a company. The prospectus of a company set outs the purpose of the company and the reason why the capital is required. It consists of basic financial information of the company. The prospective investors take their decision, whether to invest or not based on the prospectus of the company. Under section 2 (36) of the Companies Act ,1956, a prospectus is defined as, “any document described or issued as a 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.” A prospectus must be in writing and it should be dated and the date is considered to be the date of publication of the prospectus, unless the contrary is proved.

Raising Capital: Registration of Prospectus

Under section 60 of the Companies Act, 1956, the prospectus of a company can be published only after registration with the Registrar. However, it can be issued within 90 days, once the copy of the prospectus is sent to the Registrar. The copy should have the signatures of the proposed directors or the authorized agents.

Few other mandatory documents that should be accompanied with the copy are:

• consent of the expert to the issue.
• copy of material contracts.
• written consent of the person named in the prospectus, such as a banker or a lawyer.

The purpose objects for registration of a prospectus are:

• To keep a legal record of the terms and conditions based on which the shares and debentures are issued.
• To identify the accountability of the persons issuing the prospectus, for whatever is stated in the prospectus.

Raising Capital: Criminal Liability

If a statement in a prospectus is found to be false and misleading, every person involved in authorizing the issuance of the prospectus is liable to be punished with fine up to Rs.5, 000/- or confinement up to 2 years or both. S/he will not be accountable if s/he affirms that:

• The statement was irrelevant.
• S/he had realistic ground to believe that the statement was true.