Prospectus, Allotment of securities & Private Placement under the Companies Act

2013
Chapters III & IV
Sections 23 to 42
------------------------------------------------------------------Sec 23: Issue of Securities by:

Prospectus (Public Offer)

Private Limited Company
Public Company

Private Placement
Rights issue / Bonus shares

Sec 24: Power of SEBI to regulate issue and transfer of securities etc....
SEBI shall make regulation and administer the following activities of the listed
companies / those companies who are intending to get their securities listed on the
stock exchange:
a. Issue and transfer of securities &
b. Non-payment of dividend
Sec 25: Document containing offer of securities for sale is deemed to be
prospectus:
When a company allots securities to the public based on an offer that has been made,
then, any document through which such an offer is made is considered to be a
prospectus and it has to fulfil all the requirements of a prospectus.
-

Securities to be offered for sale to the public

o
o

Within 6 months after the allotment or agreement to allot or

At the date when the allotment was made and the whole of the
consideration was received.

In order to give effect to sec 26 the prospectus has to contain the following:
o
o
o
o

Net amount of consideration received or to be received and

The time and place of inspecting the allotments made
The names of the persons making the allotment
The prospectus has to be signed by

2 directors in case of directors

Firm of the partners in case of firm

Sec 26: Information to be stated in the Prospectus:

Prospectus issued by any person on behalf of the company who is/ has been engaged in
the formation of the company shall state the following information in the prospectus.
-

Prospectus to contain the objective of the offer, the main object of the
company.
Name and address of the registered office of the company, CFO, Auditors, legal
advisors and such other persons as may be prescribed and their consent and
interest on issue of prospectus.
The date of opening and closing of the issue (time schedule for the allotment)
A declaration about the issue of allotment letters and refunds
A statement by the board of directors on the separate bank account that would
be opened to deposit the money received on application and the details of their
utilization and un-utilization.
Details on minimum subscription and underwriting of the shares if any
Information on management perception, risk factors, gestation period of the
project, deadlines for completion of the project, progress details
Any litigation or legal action pending during the last 5 years immediately
preceding the year of issue of prospectus.
Financial information for the last 5 years. If 5 years has not been completed by
the company then information till the last date before the issue of prospectus.
A declaration about the compliance is to be given
Before issuing prospectus the same has to be registered with the ROC in the
prescribed manner. (ie.) along with the signatures and a written consent as the
case may be.
The prospectus is valid for a period of 90 days after the date on which a copy
thereof is delivered to the registrar.

Sec 27: Variation in terms of contract or objects in prospectus:

-

The terms of the contract/ prospectus can be modified by

Holding a general meeting and

Passing a special resolution
o The modified notice to be published in the newspapers (English and
vernacular language in the place where the registered office is situated).

Note: money raised through prospectus can not be used for buying
trading or dealing in equity shares of other listed companies.
Q: Does it mean you can use it for dealing in securities other than
equity shares?
o

Exit option is to be given to the dissenting shareholders. (SEBI

regulations shall be applicable).

Sec 28: Offer of sale of shares by certain members of company

When certain members of the company make an offer for issue of securities onbehalf
of the company to the public then such an offer is treated to be a prospectus as
allotment is being made on such offer.
Prospectus issued in such manner to contain all the information as required under law.
Sec 29: Public offer of securities to be in DEMAT form:
-

Every company making public offer and

The promoter of every public company making a public offer of any securities to
hold such securities in dematerialised form only.
Such other class of companies as may be prescribed.

Sec 30: Advertisement of prospectus:

The prospectus shall be advertised along with the following:
- Object of the company given in the memorandum of the company
- Liability of members
- Amount of share capital of the company
- Names of signatories of the Memorandum and the number of shares subscribed
Sec 31: Shelf Prospectus:
-

Shelf prospectus along with the Information Memorandum is to be filed with

the registrar at the stage of the first offer of securities
It shall be valid for a period of 1 year from the date of first offer
No further prospectus is required to be issued if further offer is made during
the validity period.

Sec 32: Red Herring prospectus (RHP):

-

Red herring prospectus may be issued prior to the issue of prospectus.

RHP shall be filed with the Registrar atleast 3 days prior to the opening of the
subscription list and the offer
In case of any variations in the RHP and the prospectus the same shall be
highlighted.
On the closure of the offer the prospectus stating the details of the capital
raised, closing price, and other information that was not available on the RHP
shall be filed with the Registrar and SEBI.

Sec 33: Issue of application forms for securities:

The application form for purchase of securities shall be accompanied by an abridged
prospectus containing the salient features of the Memorandum.

However it is not required if the application was issued:

o
o

To enter into an underwriting agreement or

In relation to those securities that were not offered to the public

Sec 34, 35 and 36: Criminal& civil liability on the company:

Every person making the offer shall be liable in case any un-true or misleading
statements are given in the prospectus
If any person has sustained any loss or damage due to any untrue or misleading
statements, then the company and every officer in default shall be liable to pay
compensation as the case may be.
However, if the concerned person proves that he is not guilty then he shall not be
liable.
-

Fraudulently inducing persons to invest money.

Sec 38: punishment to such persons who acquires or makes an application to

acquire shares illegally:
-

Any person who:

o Makes an application to the company in a fictitious name
o Makes multiple applications in different names
o Directly or indirectly induces the company to allot securities in fictitious
names

Punishment:
Shall be punishable by the court and the court may order disgorgement of gain, if any
and to seizure and disposal of the securities in his possession.
Such recovered fund shall be transferred to Investor Education and Protection Fund.
Sec 39: Allotment of Securities of Company:
The company shall allot securities on obtaining the minimum subscription amount
statement in the prospectus or 5% of the nominal amount of the securities or
such other sum as may be prescribed by SEBI.
- The return of allotment shall be filed with the ROC on allotment.
- If the minimum subscription amount is not received within 30 days from the
date of issue of prospectus or such other date then the amount received shall
be refunded.
Sec 40: Securities to be dealt with stock Exchanges:
-

The prospectus to contain the details of the stock exchange where the
securities are going to be listed.

The amount received on application shall be deposited in a separate bank account

and shall be used
o for adjusting against the allotment of securities or
o for repayment of money to the applicants

Sec 41: Global Depository Receipt:

-

A company can issue GDR in any foreign country after fulfilling the following
criteria.
o
o

Hold General meeting &

Pass Special Resolution

Private Placement
Sec 42: Offer or invitation for subscription of securities on private placement:
-

The private placement offer letter or invitation can not be issued to more than
50 people or such higher number as may be prescribed in one financial year.
o Exemption: Qualified Institutional Buyers and Employees of the company
(ESOP)
Note: The offer shall be made to only such persons whose names are
recorded by the company prior to the invitation to subscribe.
No offer shall be made to the public through any media, advertisement,
or through any distribution channels.
The complete information of the offer shall be filed with the Registrar
within 30 days from the date of circulation of the respective private
placement offer letter.

No fresh offer letter can be issued until the process of the earlier issue is
completed.
In case of any non compliance of the law then the same shall be treated as
public offer and all the criteria and laws applicable to a public offer shall be
attracted.
The subscription money can be collected only through cheque, DD or through any
other banking channel BUT NOT BY CASH.
Allotment shall be made within 60 days from the date of receipt of the money
and return of allotment shall be filed with the ROC within 30 days of allotment.
In case of non-allotment of securities then the money received on application
shall be refunded within 15 days and in case of any delay in refunding within the
said period then 12% interest shall be payable.

Sanka Indrani, Company Secretary

Achuthan R, Company Secretary