legal requirements for the issue of a prospectus

The prospectus is the basis on which the prospective investors form their opinion and take decisions as to the worth and prospects of the company. The prospectus is the chief means by which the necessary capital is acquired. A prospectus is usually a circular or newspaper advertisement published by the promoters after the formation of the company to reduce the public to take share in the company. It is defined by Section 2 (36) of the Companies Act 1956 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.” In essence, therefore, a prospectus is a document which contains the terms of the issue and is also an invitation offering to the public for subscription or purchase of any of its shares or debentures. With the Amendment Act, 1974, any document inviting deposits from the public is also a prospectus. Thus, a

prospectus is an invitation to offer and not an invitation. The Offer for Sale to be Deemed Prospectus (Section 64). Even if the whole of the share capital of a company is allotted to an intermediary known as an “Issue House” (an organization whose main business is the handling of new issues) which then offers the shares to the public by means of an advertisement of its own, any document by which such an “offer for sale to public” is made shall be deemed to be a prospectus hv implication. provided it is shown: .

I. that the offer was made within 6 months after the allotment on agreement to allot to the Issue House; or

2. that at the date when the offer was made, the whole consideration to be received by the company in respect of the shares or debentures had not been received by it.