Prospectus – An Overview

The Companies Act 2013 defines Prospectus of a Company as any document issued as a prospectus. It includes Shelf, Red Herring or any other document inviting offers from public for subscription of securities of the Company.

Prospectus- Meaning

It means a formal document that a Public Company issues to invite offers from public for subscribing its shares. It includes all the material information related to shares that a Company offers to the public. Furthermore, it usually help the investors to take investment decisions.


Contents of a Company Prospectus

  1. Name of the Company
  2. Registered Address of Company
  3. Objects of the Company
  4. Purpose of the issue
  5. Nature of Business
  6. Capital structure of Company
  7. Name and address of Signatories and no of shares subscribed by them
  8. Qualification shares of the Directors
  9. Particulars of Debentures and redeemable preference shares
  10. Remuneration of Directors and Promoters
  11. Minimum Subscription for allotment
  12. Date of opening and closing of issue
  13. Details of Underwriter
  14. Underwriting Commission and Brokerage
  15. Name and address of Auditor, Company Secretary, Banker and Trustee of Company
  16. Particulars of material documents
  17. Expected rate of dividend and voting rights

Requirements as to Issue of Prospectus of a Company

There are some requirements that company has to comply with before issuing it. Those are:-

  • There should be disclosure of material matters.
  • Moreover it must be dated.
  • Company must file a duly signed copy of it to ROC for its registration.
  • Furthermore, Company shall file it with various agencies such as SEBI, Stock exchanges and other agencies.
  • SEBI examines the draft of Prospectus to ensure disclosures and compliances.

Types of Prospectus

These are of different types. Some of them are:-

  1. Red Herring
  2. Shelf
  3. Abridged
  4. Deemed

Red Herring Prospectus

  • It is the offer document which contains all the details about the offer of securities. However it does not include quantum of issue and the price of securities.
  • Furthermore, it is not the final prospectus as Company can update it several times before the final issue.
  • Issuer company needs to file it with Registrar at least 3 days prior to the opening of offer.
  • It is named in such a way because it contains a para in Red ink. That states that Company is not attempting to sell the shares before approval of SEBI.

Shelf Prospectus

  • Company can issue more than one issue from the single document which we call Shelf Prospectus.
  • Furthermore, banks and financial institutions usually issue it.
  • In this case once the company files it with ROC, there is no need to file fresh prospectus at every issue.
  • However it has the validity of up to one year.
  • In case there is any change in the issue, then company can file such change in Information Memorandum.

Abridged Prospectus

  • It means a memorandum containing salient features of a prospectus.
  • Furthermore it contains the information in brief which helps the investor to take investment decision quickly.
  • In this case, Company needs to attach it along with every application form for purchase of securities.

Deemed Prospectus

  • It is a document which the company issues in case of offer for sale of securities to the public.
  • Moreover this document is an invitation to public to purchase the shares of company through an intermediary such as Issuing House.

Conclusion

A Prospectus is a legal document that a Public Company needs to issue for inviting public to subscribe its shares. However this requirement does not apply in case of Private Company as it cannot raise capital through public issue.

FAQs

Is private company also required to issue a prospectus?

A Private Company is not required to issue it. However Private Company needs to issue Private placement offer letter while making Private Placement.

What will be the consequence of misstatement in prospectus?

If there is any misstatement, then the persons who authorized the issue attracts the civil liability or criminal liability under Companies Act 2013.

Public Limited Company: Addition or Removal of Directors

Any Public Limited Company has to have at least three directors at any given time. The change in the directorship of a company is possible at any time as and when needed. The change includes the addition or removal of Public Limited Company directors. In addition, to exhibit the change a company must follow the rules specified under the Companies Act. Addition or removal of Public Limited Company directors can be done by passing a resolution in the general meeting.

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Addition Of Director in Public Limited Company

The addition of the director can take place in a company only in a general meeting with the approval of the shareholders. Further, this takes place through an annual general meeting or by calling an extraordinary general meeting. However, sometimes it is not feasible to wait for an AGM or to call an extraordinary general meeting. In such circumstances, a company can add an additional director in a board meeting and later on it can regularize such director in the upcoming AGM.

Pre-requirements for Addition of Directors

  • Digital Signature.
  • The director must have DIN.
  • Consent to act as a director in Form DIR-2.

Process for addition of Directors of Public Limited Company

  • In Annual General Meeting or Extraordinary General Meeting
    • Notice to all directors to call a Board Meeting
    • Pass a Board Resolution to call General Meeting.
    • Further, send notice of General Meeting to all the shareholders.
    • Pass resolution in AGM or EGM for addition of director.
    • File form DIR-12 with MCA within 30 days of appointment.
  • Appointment by Directors
    • Send Notice to all directors to call a Board Meeting.
    • Pass Resolution for appointment of Director.
    • File Form DIR-12 with MCA after appointment.
    • At the time of AGM, pass a resolution to regularize the additional director.

Removal of Director in Public Limited Company

There can be three possible reasons for Removal of Director:

  1. Director voluntarily gives his resignation
  2. Removal of director suo-moto by the board.
  3. If the director does not attends 3 continuous board meeting.

Voluntary Resignation of Directors

  • The Director willing to resign submits his resignation to the Board.
  • Further the company holds a board meeting giving 7 days of clear notice. (Clear notice means 21 days notice excluding the day on which the notice was sent and received)
  • Board in the Board Meeting shall decide whether to accept the resignation or not.
  • Once the Board accepts the resignation of Director they will pass a Board Resolution.
  • Further the director shall file form DIR-11 along with the copy of Board Resolution and copy of resignation letter.
  • The company shall file Form DIR-12 with MCA.
  • After filing all the forms, the name of the director will be removed from the master data of the Company on the Ministry of Corporate Affairs website.

Removal of director Suo-moto by Board

  • Send 7 days Notice to all the directors for holding a board meeting. Special notice to directors informing about the removal of the director.
  • In the Board meeting pass a resolution for holding an Extra Ordinary Board Meeting. Along with that pass a resolution for the removal of the director subject to the approval of shareholders.
  • EGM shall take place by giving 21 days clear notice. In EGM if the majority of members are in favor of the decision, the resolution will be passed.
  • However, before passing the resolution, an opportunity of being heard will be given to the director.
  • After the resolution, the director shall file Form DIR-11 and the company shall file Form DIR-12 with MCA.
  • After filling all the forms, the name of the director will be removed from the master data of the Company on the Ministry of Corporate Affairs website.

Director does not attend Board Meetings for 12 months

As per section 167 of the Companies Act, 2013 a Director shall vacate the office if he does not attend Board Meetings for a continuous period of 12 months. Further the period of 12 months begins the first board meeting in which he was absent. As a result of vacation Form DIR – 12 will b filed on his name. After which his name will b removed from the Ministry of Corporate Affairs.

FAQs

Can a body corporate be appointed as a director in the company?

No, a body corporate cannot be appointed as a director in a company. Only an individual can be appointed as a director in the company.

Is there any eligibility criteria for adding a new Director?

Yes, there is eligibility criteria for adding new director and it is as follows:
– The proposed individual must be a major.
– He or she must qualify as per the laws mentioned under the Companies Act, 2013.
– The Members of the Board must give consent to the appointment of the individual.
– However the Companies Act does not mention any educational qualification in order to be eligible to become a Director.

Section 8 Company : Laws Applicable to an NGO

Section 8 Company is a Company Licensed u/s 8 of the Companies Act, 2013. The main purpose of establishing a section 8 company is to promote non-profit objectives. Many of these companies primarily have charitable and non-profit objectives. As a result, it is similar to a Trust or Society. In addition, it intends to apply its profits, if any, or other income in promoting its objects.

Therefore the main objectives of Company registered u/s 8 are:

  • Promoting research,
  • Social welfare,
  • Religion,
  • Charity,
  • Commerce,
  • Art,
  • Science,
  • Sports,
  • Education, etc
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Laws applicable to an NGO in India

In India, you can register an NGO under any of the following Acts:

  • Trust under Indian Trusts Act, 1882
    • It is not mandatory for a Charitable Trust to obtain registration.
    • Unless the Trust wants to claim income tax exemptions or is based in a state that is governed by the Public Trusts Act.
  • Society under Societies Registration Act 1860
    • A group of seven or more people can form a society.
    • Further, its formation is more complicated than that of trust. But it has more flexibility in terms of regulations.
  • Section 8 Company under Companies Act, 2013
    • Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object.
    • However, it cannot pay dividends to its members.
    •  Further, these companies also apply their profits towards the furtherance of their cause and do not pay any dividend to their members.
Private Limited Company (PLC) Registration
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Who Can Form Section 8 Company?

  • Any two or more persons or association of persons (including a partnership firm)
  • Any existing company
  • However One Person Company cannot be a Section 8 Company as per Rule 3(5) of Company Incorporation Rules.

Benefits of Section 8 Company

  • It enjoys exemption from stamp duty for registration
  • Further, donors of the company can avail Tax deduction.
  • Section 8 Companies can be formed with or without share capital. Thus the funds are brought in the form of donation
  • Shareholders can transfer their shares easily.
  • In addition these companies are exempt from keeping any titles or suffix.

FAQs

Can a Company with unlimited liabilities be registered as
a Section 8 Company?

No. Rule 20(1) of the Companies (Incorporation) Rules, 2014
provides that only a limited company registered under this Act or under any previous company law shall make an application to the Registrar for the issue of license. Therefore, a company with unlimited liabilities cannot be registered as a Company u/s 8.

Can Company registered u/s 8 issue redeemable preference shares?

There is restriction in section 8(1) for distribution of profits and payment of any dividend to its members. Therefore the company cannot issue  redeemable preference shares.

Which is more beneficial a trust or company u/s 8?

The cost factor involved in trusts are critically low as compared to a company registered u/s 8 of the Company’s Act. However the transparency in working is very low in trusts as compared to a Company u/s 8. As a result the grant of subsidies to trust is very less as compared to the company registered u/s 8.

Annual Compliances : Public Limited Company

A Public Limited Company is a separate legal business entity having limited liability with a minimum of 3 directors & 7 members. The securities of a limited company are traded on a stock exchange. Therefore, it is mandatory to file annual compliances by Public Limited company on time as per dates defined by ROC. Further, the public company enjoys huge benefits like

  • Limited liability,
  • Transferability,
  • Borrowing capacity, etc.

However, failure in filing compliances by Public Limited Company on time leads to heavy penalties on business.

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Following are Annual Compliances of Public Company:

  • Annual Return Compliances
    • The company should file an Annual Return in Form MGT 7. It also includes details related to directors and shareholders for the period of the financial year.
    • The due date for the Annual Return is within 60 days of holding Annual General Meeting
    • The Annual Return consists of Financial statements, shareholding structure, compliance certificate, and details of various registers maintained.
  • Maintenance of Books of Accounts and preparation of Financial Statements
    • Every Public company should compulsorily maintain the books of accounts each financial year.
    • Further, the shareholders should approve the financial statement in the general meeting.
    • File Form AOC-4 with the time stipulated. Along with the Balance Sheet, Profit and Loss Account, Directors’ Report, Cash Flow Statement, Auditor’s Report, and the Consolidated Financial Statement.
  • Income Tax Returns
    • The company should file its Income Tax return on or before 30th September.
  • Secretarial Audit Report in Form MR-3
  • File Form MGT-14 for Adoption of Financials and Director’s Report.
  • Annual Compliances under all Rules and Regulations associated with SEBI
  • Other Mandatory Compliances:
    • Holding of Annual general meeting once in a financial year for approving the financial statements
    • Conducting Board Meetings 4 times a year.
    • Filing of the Director’s Report once in a year.
    • File form MGT-15 regarding an exclusive report on the Annual General Meeting (AGM) of the company.
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FAQs

Is there any penalty for not filing the Annual Filling?

Yes. Penalty is levied in case of delay in annual filling or non filing.

Who should sign annual filling e-Forms?

A Director of the company and a CA/ CS should digitally sign Annual return.

When is annual return of Public Limited Company?

Public Limited Company should file Annual returns every year. Along with the Balance Sheet, P&L Account, and other documents. However, it is different from the income tax return and it’s governed by the Ministry of Corporate Affairs.

Public Limited Company

A Public Limited Company is a separate legal business entity having limited liability. The securities of Limited companies are traded on a stock exchange. Anyone can buy and sell shares of Public Limited Company. As per Company Law, 2013 a Public Company has to compulsorily present its financial stats and position publicly to maintain transparency. Furthermore, it enjoys huge benefits like

  • Limited liability,
  • Transferability,
  • Borrowing capacity, etc.
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Characteristics of Public Limited Company

  • Paid Up Capital:
    • According to the Companies Act, 2013, a Public company in India should have a minimum paid-up capital of Rs. 5 lakhs.
  • Directors:
    • A public company should have a minimum of 3 directors. Further, there is no such restriction on the maximum number of directors. They must also possess a DIN issued by MCA.
  • Limited Liability:
    • One of the key benefits is limited liability. It means that the liability of the shareholders in case of loss or debts is only to the extent of investment they have made in the company. However, this characteristic does not offer immunity to the shareholders. Further, the shareholders will be responsible for their own illegal actions.
  • Name:
    • It is a compulsory requirement for all public companies to add the word ‘limited’ after their name.
  • Prospectus:
    • It is a comprehensive statement of the affairs of the company. Furthermore, it is mandatory for a public company to issue a prospectus
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Disadvantages of Public Limited Company

Though Public Company is an excellent option for the entrepreneurs who lack capital for starting a business, it also has certain drawbacks:

  • More Regulations:
    • A company has to follow more laws and regulations applicable to it which is a hefty task. Therefore it becomes difficult to cope up with such regulations.
  • Ownership:
    • Ultimately, a company has to go public to work as a Public Company. Therefore the loss of ownership leads to the loss of control over the decision making of the company.
  • Disclosure of Company’s Financial Position:
    • It has to disclose the complete and true financial health of the company in front of the public. Thus, to assure a high level of transparency.
  • Profit-Sharing:
    • The public company has to pay dividends to its shareholders. Therefore it entitles each one of them a tiny proportion of that profit.

FAQs

Who controls a public limited company?

Shareholders are the owners of a Public company. However, they appoint a board of directors who control and make decisions about the business.

What are the Requirements for Public Limited Company Registration in India?

There should be minimum 7 shareholders and 3 Directors to set up a Public Limited Company. Above all, Directors can also be shareholders. Furthermore, the minimum paid-up share capital should be Rs. 5 lakhs.

Can an NRI/Foreign National be a director in a Public Limited Company?

Yes, an NRI or Foreign National can also be a shareholder or director in a public company of India. However it should possess a DIN issued by MCA.

How to Register a Public Limited Company?

A Public Limited Company is a separate legal business entity having limited liability. The securities of a Public limited company are traded on a stock exchange. In order to register as a Public Limited Company, the company must have a minimum of 3 Directors and 7 Shareholders. And should also have Rs 5 Lakhs as Paid-up Capital.

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Procedure to register a Public Limited Company

Follow the steps to register a Public Limited Company:

  1. Obtain a DSC of the proposed Directors of the Public Limited Company

    Obtain DSC of at least one director to sign the E-forms related to incorporation.

  2. Once a DSC is received. File Form DIR-3 with the ROC for getting a DIN if the directors does not possess DIN.

    For DIN application you will require Identity Proof and Address Proof. Every Director proposed to be appointed in the company should hold a valid DIN.

  3. Visit MCA website for name reservation/ availability.

    Click on RUN (Reserve Unique Name) under MCA Services on the MCA website.

  4. It will take you to another Portal. Now login using your MCA credentials.

    Under entity type select Public Limited Company.
    You don’t need to add CIN since it for existing registered companies.
    Enter the proposed name make sure it is not similar to the existing name.

  5. Fill in the required information.

    Click on the Auto check.
    Further, if the name matches an entry in the database, it will show an error. Once the proposed name is error-free, you need to pay a minimum amount of Rs. 1000 run the similarity test and to reserve the name.

  6. If the proposed name is approved by the Ministry. You will receive a notification about the same on your registered email address.

    Download all the forms of incorporation on MCA Website.

  7. File Form INC-12 also known as SPICe form.

    For application of licence for Public Limited Company.

  8. File SPICe MOA and SPICe AOA.

    Upload these form on MCA Website.

Documents for Incorporation

  • PAN number of all the shareholders and directors
  • Proof of identity of all shareholders and directors.
  • Proof of Address of all directors and shareholders.
  • Utility bill of the proposed registered office of the company.
  • NOC from the landlord if the office premises are on lease or rent.
  • DSC of Directors.
  • DIN of all directors.
  • Memorandum of Association (MOA).
  • Articles of Association (AOA),

FAQs

Can a salaried person become director of company ?

Yes, there is no legal hurdle. However employment agreement may have some restriction.

What are the primary requirements for a public limited company?

Following are the primary requirements of Public Company:
– The minimum number of shareholders must be 7.
– File accounts within 6 months of the year-end.
– The minimum Paid-up share capital must be Rs. 5 lakhs.
– The minimum number of Directors is 3.

Can an NRI/Foreign National be a director in Public Limited Company? and If Yes, then what are the conditions for the same?

Yes, an NRI or Foreign National can also be a shareholder or director in a Public Limited Company of India. However, for becoming a director, such a person must possess the DIN issued by MCA.

Conversion of Private Limited Company to Public Limited Company

Let us first understand what is a public and private limited company. Public Limited Company is a separate legal business entity. In addition the shares of this company are traded on the stock exchange for the general public. Whereas Private owners own a private limited company. This type of entity limits the owner’s liability to their ownership stake. Further PLC also restricts shareholders from publicly trading shares. The main advantage of Public Company is that it can raise reserves on a large scale. Here are benefits when you convert PLC into a Public Limited Company.

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Benefits of Public Limited Company:

  • Raising Capital: The biggest advantage of being a Public Limited Company is that it can raise capital from the public by issuing shares. However, this would require listing on the stock exchange.
  • Share Transfer: Shareholders can transfer shares of Public Limited Company easily. Therefore shareholders have a benefit of liquidity by filing the share transfer form and hand over the share certificate to the buyer.
  • Greater Credibility: As per Company Law, 2013 a Public Company has to compulsorily present its financial stats and position publicly to maintain transparency. It also has to convene the Annual General Meeting for all the shareholders. These compliances bring a great deal of credibility.
  • Other Financial Opportunities: Listing of Public Limited Company helps in improving the creditworthiness of the company when issuing corporate debt.

The process to convert Private Limited Company(PLC) into Public Limited Company

Here is a detail procedure for voluntary conversion of Private Limited Company into Public Limited Company:

  1. Conduct a Board Meeting.

    Pass a Board Resolution to get the in-principal approval of Directors for conversion. And also for increase in number of directors upto 3, if directors are less than 3.
    Further fix date, day and time for conducting Extra-ordinary General Meeting to get an approval of shareholders.

  2. Send notice to shareholders along with agenda and explanatory statement as per Companies Act, 2013.

    In EGM, pass Special Resolution to get shareholders approval for Conversion of Private Company into a Public company. In addition obtain approval for alteration in the Articles of Association for such conversion.

  3. For alteration in AOA file the below forms along with the copy of special resolution with concerned ROC.

    File Form MGT-14 within 30 days of passing the resolution at EGM on the MCA Website.
    After that file E-Form INC 27 for conversion of the company with MCA along with necessary attachments.

  4. After receiving the documents, ROC shall satisfy itself that the company has complied with requisite provision for conversion.

    Further which ROC shall enclose the previous registration and issue a fresh Certificate of Incorporation.

FAQs

Who controls a Public Limited Company?

Shareholders are the owners of a public limited company. However, they elect a board of directors who make decisions on behalf of the business.

Why would a private company (PLC) change to a public company?

Shares in a public company are easily transferable in comparison to the PLC. Further the shareholders can sell the shares and benefit from its liquidity. Therefore this acts as an incentive for people to invest as they are not bound to remain with the company forever.

What are the requirements in order to convert into Public Limited Company?

The company should fulfill the following requirements before converting into Public Limited Company:
– DSC for 1 Director
– Minimum 7 Shareholders
– DIN for all directors
– Minimum Authorized Share Capital of Rs 5 lakhs
– Minimum Paid up Share Capital of Rs.5 lakhs
– Director and shareholder can be the same person
– Minimum 3 Directors

What are the Documents required for conversion of PLC to Public Company?

Following are the documents required for conversion:
– Copy of PAN Card of Directors
– Passport size photograph of Directors
– Copy of Aadhaar Card/ Voter identity card
– Copy of Rent agreement, if property is on rent.
– Electricity/ Water bill (Business Place)
– Copy of Property papers (If owned property)
– In addition to rent agreement NOC of Landlord