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Thread: Q. Define prospectus. what is the purpose of issuing it?

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    Word Icon 35px Jpg.ashx Q. Define prospectus. what is the purpose of issuing it?

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    Q. Define prospectus. what is the purpose of issuing it? briefly discuss its contents. (1997)
    Q. Define prospectus. what are the liabilities of both civil and criminial which arises as a result of an untrue statement in a prospectus. (2000, 2004, 2005)
    Q. Define statement in lieu of prospectus. under what circumstances is the filling of such statement is required. (1999)
    Q. Define "prospectus". what are the liabilities both civil and criminal which arises as a result of an untrue statement in a prospectus. (2006/S)
    1. Introduction:

    Prospectus is a document in which a company invites the public to purchase its shares. it is a legal document issued by a company if a company has not issued the prospectus in its formation then it must file a statement in lieu of prospectus with the registrar of the companies. it provides the information as in prospectus. if a company fails to issue then it must file the statement in lieu of prospectus. prospectus may be dated and signed by all the directors or other agents.
    2. Definition of prospectus:
    The companies ordinance 1984 defines prospectus as under:
    "Any prospectus, notice, circular, advertisement or other invitation offering to the public for subscription or purchase of any shares in or debentures of a body corporate.
    3. Power to issue prospectus:
    A prospectus may be issued by or on behalf a company or by or on behalf of any person engaged or interested in to formation of the company.
    4. Objects of issuing prospectus:
    The objects of issuing prospectus are as under.
    (i) Notice:
    To bring the notice of the public that a new company has been formed.
    (ii) Authenticated record:
    To keep the authenticated record of the conditions on which the capital has been raised.
    (iii) Responsibility:
    To secure that the directors of the company accept responsibility for the statements in prospectus.
    5. Contents of prospectus:
    Following are the main contents of prospectus.
    I. Brief history and objects:
    (i) Brief history of the company.
    (ii) The main objects of the company.
    (iii) The location of the plant.
    (iv) Information about the project, plant, and it machinery.
    II. Share capital:
    (i) Share capital of the company.
    (a) Authorized capital.
    (b) Paid up capital.
    (c) Issued.
    (ii) Basis of allotment of shares.
    (iii) Facilities available to non-resident Pakistanis for purchase of shares.
    III. Commission, brokerage and tax exemptions:
    (i) Commission to be paid to the bankers to the issue.
    (ii) Brokerage.
    (iii) Tax exemption on investment on the shares of the company.
    (iv) Exemption from custom duty and sales tax on plant and machinery, if any.
    IV. Financial information:
    (i) Auditor's report.
    (ii) Liabilities of shareholders.
    (iii) Auditor's certificate on share capital.
    (iv) Estimated cost project and the means of finance.
    V. General information:
    (i) Appointment of chief executive.
    (ii) Election of directors.
    (iii) Powers of directors.
    (iv) Transfer of shares.
    (v) Borrowing powers of the directors.
    (vi) Quorum of general meeting.
    VI. Board of directors:
    (i) Names of directors.
    (ii) Addresses of directors.
    (iii) Occupation of directors.
    VII. Interest of directors:
    (i) Interest of directors in dividends and other benefits.
    (ii) Remuneration to be paid to chief executive.
    (iii) Remuneration to be paid to directors.
    (iv) Remuneration to be paid to secretaries.
    VIII. Application and allotment:
    (i) The procedure for applying shares.
    (ii) The procedure for allotment of shares.
    IX. Information about promoters:
    (i) Names of promoters.
    (ii) Addresses of promoters.
    (iii) Occupation of promoters.
    X. Miscellanous:
    (i) Legal advisor.
    (ii) Details of proceeding which are pending in court.
    (iii) Name of auditors.
    (iv) Place of registered office.
    (v) Bankers of the company.
    (vi) Bankers to issue both local and foreigner.
    6. Statement in lieu of prospectus:
    According to Sec 53 of companies ordinance, if a public company is not issuing a prospectus on its formation, then it must file a statement in lieu of prospectus.
    (a) Definition of statement in lieu of prospectus:
    "It is public document prepared in the second schedule of the companies ordinance by every public company which does not issue a prospectus on its formation by filing with the registrar before allotment of shares of debentures and signed by every person who is named there in."
    7. Contents of a statement in lieu of prospectus:
    (i) Name of company.
    (ii) Description of the business.
    (iii) Statement of capital.
    (iv) Addresses of directors, secretary and managing agents.
    (v) Minimum subscription.
    (vi) Estimated initial expenses.
    (vii) Director's interest.
    (viii) Material contracts.
    (ix) Names of vendors and detail of property.
    8. Untrue statement in prospectus:
    If any statement mentioned in the prospectus which is misleading in form or context or any statement calculated to be misleading shall be regarded as untrue statement.
    9. Liability which arises as a result of untrue statement:
    Untrue statement in the prospectus has following liabilities.
    (A) Civil liability
    (b) Criminal liability
    (A) Civil liability:
    If people who issue a prospectus and make untrue statement there in will be liable to compensate those who suffer injury there by.
    Civil remedies:
    A person who has purchased shares on the faith of prospectus that fails to comply with statute or which contains a false or untrue statement may in appropriate cases pursue on of the following remedies.
    (a) He may repudiate the contract.
    (b) He may sue the company for return of money.
    (c) He may sue for damages.
    (B) Criminal liability:
    The companies ordinance imposes criminal liability on persons who willfully make a falls statement in the prospectus or statement in lieu of prospectus and provides a punishment of imprisonment up to two years, or with fine which may extend ten thousand rupees or with both.
    10. Defences:
    However, the director, promoter, or the person who has given consent to the prospectus has a defence. if he prove that;
    (i) He withdraw his consent before the prospectus was issue.
    (ii) The prospectus was issued without his knowledge and on becoming aware of its issue, he promptly gave reasonable public notice to that effect. or
    (iii) After the issue of prospectus and before the allotment on becoming aware of untrue statement, he withdraw his consent and gave reasonable public notice or.
    (iv) He had reasonable grounds to believe the statement to be true and that he had, in fact believed it to be true or,
    (v) The statement was made on the authority of an expert and it fairly represented his opinion or.
    (vi) The statement is an extract or a copy of an official document.
    11. Conclusion:
    To conclude, I can say that, the prospectus is a document in which a company incites the public to purchase its shares or debenture. if a company has not issued the prospectus on its formation then it must file a statement in lieu of prospectus with the registrar of the companies. untrue statement in the prospectus has statutory liability as well as civil and criminal liability.

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