A public issue is an offer of securities to the public, and it must be made through a prospectus. Chapter III of the Companies Act, 2013 governs the prospectus, and the SEBI (ICDR) Regulations apply to listed public issues.
The Types of Prospectus
A prospectus can be a full prospectus, a shelf prospectus (for a company that intends to make multiple issues over a period), a red herring prospectus (which does not contain the price or the quantum) or an abridged prospectus. A deemed prospectus applies where a company allots securities with the intention of their being offered to the public. The type determines the disclosure and the filing requirements.
The Contents
The prospectus must contain the prescribed disclosures: the company’s business, the risk factors, the objects of the issue, the financial statements, the management, the litigation and the regulatory approvals. The SEBI (ICDR) Regulations prescribe additional disclosures for listed issues. The prospectus must be dated and filed with the ROC, and it must be made available to the public.
The Liability for Misstatements
Section 35 imposes civil liability on the company, the directors, the promoters, the persons who authorised the issue and the experts for any untrue statement or misleading omission in the prospectus. The liability extends to the persons who subscribed on the faith of the prospectus. Section 36 imposes criminal liability for a false statement in the prospectus. The liability is not limited to the company; the individuals who signed the prospectus can be personally liable.
The Practical Discipline
The company should maintain the due-diligence record, the board approvals, the expert consents and the ROC filings. The prospectus is a public document, and the disclosures are the basis of the investor’s claim. A prospectus that contains a material misstatement or omission exposes the company and its officers to civil and criminal liability.
Call to Action: We advise companies on public-issue structuring, prospectus disclosure and misstatement liability. For a public-issue review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.