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State the main features of a prospectus

State the main features of a prospectus.

Answers

sharon
It is a document that when the public is asked to subscribe for shares or debentures in a company the invitation involves the issue of documents which set out the advantages to accrue from an investment in the company.
It may be issued either by the company itself or by a promoter. It is only in the case of a public company that a prospectus may be issued.

A private company must always raise its capital privately as required by Section 13 of the Companies Act Cap 486.
Section 20 of the Statute defines Prospectus as “any prospectus notice circular advertisement or other invitation offering to the public for subscription or purchase of any shares or debentures in the company.”A prospectus is therefore not an offer but an invitation to treat.

The object of the Companies Act is to compel a company to disclose in a prospectus all the necessary information which will enable a potential investor in deciding whether or not to subscribe for a company shares or debentures. Therefore Section 40 requires that every Prospectus shall state the matter specified in Article 1 of the 3rd Schedule to the Act and that it will also set out the report specified in Part II of that Schedule. The provisions in that Schedule are designed mainly to provide information about the following matters:

1.Who the directors are; and What benefits they will get from the Directorship;
2.In the case of a new company, what profits are being made by the promoters;
3.The amount of capital required by the company to be subscribed, the amount actually received or to be received the precise nature of the consideration which is not paid in cash;
4.In the case of an existing company, what the company’s financial records have been in the past?
5.The company’s obligations under any contracts it has entered into;
6 the voting and dividend rights of each class of shares;
7.If a Prospectus includes any statement by an expert, then the expert must have given his written consent to the inclusion of the statement and the prospectus must state that he has done so as per Section 42 of the Companies Act.
Contravention of these requirements renders the company and every person who was knowingly a party to the issue of the prospectus to a fine not exceeding 10,000/-
the prospectus. However, there are two instances when a prospectus need not contain the matter set out in Schedule III namely
1.When the prospectus is issued to existing members or shareholders of the company;
2.When the prospectus relates to shares or debentures uniform with previously issued shares debentures.
sharon kalunda answered the question on April 15, 2019 at 05:44

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