Prospectus & Allotment Notes
Ch 3: Prospectus & Allotment
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1. How Companies Issue Securities

Company Type Available Methods
Public Company ✅ Public Offer, Private Placement, Rights/Bonus Issue
Private Company ❌ No Public Offer. ✅ Can use Private Placement & Rights/Bonus Issue.
  • IPO: First time a company offers shares to the public.
  • FPO: Subsequent offer of shares by an already listed company.
  • OFS: An existing shareholder sells their shares to the public.
Ch 3: Prospectus & Allotment
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2. Types of Prospectus

Type of Prospectus Key Features
Shelf Prospectus (Sec 31) Valid for 1 year for multiple offers. Requires an Information Memorandum for each offer.
Red Herring (Sec 32) Lacks price/quantum details. Used for book-building. File 3 days before offer.
Abridged (Sec 2(1)) A summary of the main prospectus. Must accompany every application form.
Deemed (Sec 25) When a company sells shares to an intermediary to offer to the public.
Ch 3: Prospectus & Allotment
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3. Rules for a Prospectus

  • Must be dated and signed by all directors.
  • Must contain all information specified by SEBI.
  • A copy must be filed with the ROC before public issue.
  • A prospectus is valid for 90 days from the date of filing with ROC.
Ch 3: Prospectus & Allotment
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4. Mis-statements in Prospectus

Liability Type Details
Criminal (Sec 34) ⚖️ Punishment for Fraud under Sec 447 for every person who authorizes the issue.
Civil (Sec 35) 💰 The company, directors, promoters, etc., must pay compensation for any loss.
Ch 3: Prospectus & Allotment
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5. Allotment of Securities

  • Minimum Subscription: Cannot allot shares unless at least 90% of the issue is subscribed.
  • Application Money: Must be at least 5% of the nominal value of the share.
  • Refund: If min. subscription is not met in 30 days, refund all money within the next 15 days.
  • Penalty for Delay: If refund is delayed, directors pay with 15% p.a. interest.
  • All application money must be kept in a separate bank account.
Ch 3: Prospectus & Allotment
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6. Private Placement (Sec 42)

  • Offer to a select group of not more than 200 persons in a financial year.
  • Requires a Special Resolution from shareholders.
  • Offer is made via Form PAS-4; no renunciation allowed.
  • Payment must be via banking channels, no cash.
  • Allotment must be done within 60 days of receiving money.
  • If not allotted, refund within 15 days, or pay 12% p.a. interest on delay.
  • No public advertising is permitted.
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