CORPORATE FINANCE

PROSPECTUS (GOLDEN RULE)

Bhavya Shah

What is Prospectus?

Section 2(70) of Companies Act, 2013 –‘Prospectus” means any document described or issued as a

prospectus and includes a Red Herring Prospectus referred to in section 32 or Shelf Prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

Types of prospectus:i. Abridged prospectusii. Shelf prospectusiii. Red herring prospectus

Information that a prospectus contains:a. General informationb. Capital structure of a companyc. Particulars of the issued. Outstanding litigatione. Certain prescribed particulars

There are CIVIL liability and CRIMINAL liability for untrue statement in prospectus.

WHAT IS UNTRUE STATEMENT? Misleading Inclusion or omission that is material to mislead.

Golden legacy

It is duty of those who issue prospectus to be truthful in all respects. This rule was pronounced by Kinderseley, in New Brunswick, etc.,

Co. V. Muggeridge. Public is invited to take shares on the faith of the representation

contained in the prospectus. Hence, everything must be stated with strict and scrupulous accuracy.

If concealment of any material fact has prevented and adequate appreciation of what was stated, it would amount to misrepresentation.

R.V.Kylsant’s case – all statements in the prospectus were true but suppressed material fact regarding payment of dividend.

The prospectus was held to be false and the M.D. and chairman were held guilty of fraud.

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