A prospectus is usually a circular or newspaper advertisement published by the promoters after the formation of the company to induce the pubic to take shares in the company. The invitation must be to the public if the document is to be a prospectus. The word ‘public’ is a general word. No particular numbers are prescribed. Anything from two to infinity may serve. Where the invitation or offer of shares made to a section to the public does not entitle other than those who received the invitation or offer it will not be an invitation to the public. The offering of shares to the kith and kin of a director is not an invitation to the public to buy shares.

Formalities in issuing a prospectus:

Every prospectus issued by or on behalf of a company must be dated and that date shall unless the contrary is proved, be regarded as the date of its publication. (section 55)

A copy of the prospectus signed by every director or proposed director or by his agent must be delivered to the registrar on or before the date of publication. The prospectus issued to the public should mention that a copy of the prospectus along with the specified documents have been filed with the register. Where a person is named therein as auditor, legal adviser, attorney, solicitor, banker or broker of the company, it must be accompanied by a consent in writing of such persons to act as such. Where a prospectus is issued without a copy thereof being delivered to the register, as above, or without the required documents or consent attached thereto, the company and every person knowingly party to the issue of the prospectus, is liable to fine up to Rs.5, 000.

A prospectus must not be issued more than 90 days after the date on which a copy thereof is delivered for registration. If a prospectus is so issued it will be deemed to be a prospectus a copy of which has not been delivered to the registrar.

Contents of a prospectus:


A prospectus must contain the necessary information to enable the public to decide whether or not to subscribe for its shares or debentures. Every prospectus shall state the particulars specified in part I and II of schedule II. Both parts I and II shall have effect subject to the provisions contained in part III of that schedule. It shall also in the prospectus reproduce the provisions of section 68 A-(i).

Part I of schedule II- matters to be specified

1. The main objects of the company with particulars of the signatories to the memorandum and the number of shares subscribed by them.

2. The number and classes of shares and the nature and extent of the interests of the holders in the property and profits of the company.


3. The number of redeemable preference shares to be issued and the details of such shares.

4. The number of shares fixed by the articles as the qualification of a director.

5. Names, descriptions and addresses of directors, or proposed directors or managing directors or the managers.

6. Where shares are offered to the public, the particulars as to


a. The minimum amount which in the opinion of the directors must be raised by the issue of shares, and

b. The amount to be provided from other sources.

7. The time of the opening of the subscription list.

8. The amount payable on application and allotment,


9. Particulars of any option to subscribe for shares and the persons entitled to the option.

10. Particulars of any option to subscribe for shares and the persons entitled to the option.

11. Particulars of the premium paid or payable on shares issued within two years preceding the issue of the prospectus.

12. If any such issue is underwritten names of the underwriters and the opinion of the directors as to the financial position of the underwriters.


13. The names and addresses of the vendors of any property acquired or to be acquired by the company which is to be paid for out of the proceeds of the issue.

14. The amount or rate of the brokerage or underwriting commission paid within the preceding two years or now payable.

15. Preliminary expenses and the person by whom it is paid or payable.

16. Any benefit given to any promoter or offer in the two preceding years and the consideration for giving of the benefit.


17. The date of and parties to any material contract and the general natural of all such contracts.

18. The names and addresses of the auditors of the company.

19. Full particulars of the nature and extent of interest of the directors or promoters in the promotion of the company or in the property acquired by the company.

20. Voting rights of different classes of shareholders.

21. Particulars of restriction, if any, on the right of the members to attend, speak or vote at the meetings, or the right of the members.

22. Where the company carries on business, the length of time during which it has been carried on.

23. If any reserves or profits of the company have been capitalized the particulars of the same.

24. A reasonable time and place at which copies of all balance sheets, profit and loss account, if any may be inspected.

Part II of schedule II – Reports to be set out.

1. Report of the auditors of the company with respect to :

a. Profits and losses and assets and liabilities of the company;

b. The dividend paid by the company in each of the five years preceding the prospectus.

c. The profits and losses of the subsidiary company, if any.

2. A report by named accountants of the profits and loosed and assets and liabilities for each of the five financial years preceding the issue of the prospectus of any business intended to be purchased with the proceeds of this issue.

3. If the proceeds of the issue are to be applied in the acquisition of shares in another company, a report of the names accountants about such company.

Expert Opinion:

A prospectus shall not include statements purporting to be made by expert if they are connected either with the formation or with the management of the company. The expression expert includes an ‘engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him’. Where a prospectus includes a statement by an expert, it must not be issued unless the expert has given his written consent to the issue of the prospectus with the statement included in the form and context in which it is included. A statement that he has given and not withdrawn his consent must also appear in the prospectus. This is intended to protect the prospective shareholders by making the expert a party to the issue of the prospectus and making him liable for untrue statements.

Terms of the contracts mentioned in the prospectus not to be varied:

A company cannot, at any time, vary the terms of a contract referred to in the prospectus or statement in lieu of prospectus. Any alteration can be made only by a resolution passed at a general meeting of the shareholders, or on authority given by the company.

When prospectus is not required to be issued.

1. When shares or debentures are offered to existing shareholders or debenture holders.

2. When the issue relates to shares or debentures uniform in all respects with shares or debentures previously issued and dealt in or quoted in a recognized stock exchange.

3. Where a person is bonafide invited to enter into an under writing agreement.

4. Where shares or debentures are not offered to the public.