A prospectus means any document described or issued as 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.
Definition of Prospectus:
Sec
2 (36) A prospectus means any document described or issued as 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.
Thus, a prospectus is not merely an advertisement; it may be a circular or even
a notice.
A document shall be called a prospectus it satisfies
two things:
1. It invites subscriptions to shares or debentures or
invites deposits.
2. The aforesaid invitation is made to the public.
The Board attends to the following matters:
1. Appointment of various expert agencies such as
bankers, auditors, secretary, etc.
2. Entering into underwriting contract, brokerage
contracts.
3. Making arrangements for the listing of shares on stock
exchanges.
4. Drafting a prospectus for the purpose of issue to the
public.
Underwriting
Underwriting, in its simplest
form, consists of an undertaking by some person or persons that if the public
fails to take up the issue, he or they will do so. In return for this
undertaking, the company agrees to pay the underwriter a commission on all
shares or debentures, whether taken up by the public or by he underwriters.
Sub-Underwriting
The underwriters usually choose
to spread their risk by using sub-underwriters who agree to take a certain
number of shares for which they accept responsibility and for which they
receive a commission out of the commission received by the underwriters. The
difference between the commission paid by the company to the principal underwriters and the
commission paid by them to the sub-underwriters is known as overriding
commission.
Brokerage
Contracts
There must be authority in the articles
to pay brokerage, and the brokerage must be disclosed in the prospectus, or
statement in lieu of prospectus, as the case may be, and it should pay a
reasonable brokerage (Sec. 76).
Tags : Business Environment and Law-Prospectus And Statement In Lieu Of Prospectus
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