Prospectus

M. SAQIB BHATTI
Advocate High Court
saqibalibhatti@yahoo.com
03335193933
1
Definition
Prospectus is a document, containing the
advertisement for invitation of subscription
from the public.
It is a legal document that institution and
business use to describe the securities they are
offering for participants and buyers.
2
Importance of Prospectus
It provides the investor with material
information about mutual funds, stocks of the
company, bond issued by the company and other
investments made by the company.
It also tells the investor about the financial
position of the company, the biography of the
officers, directors, the CEO and other key
information which an investor required before
making the investment.
3
Matters to be stated in Prospectus
Following matters and reports are to be set out
in a prospectus:-
The contents of MOA and AOA
The name, addresses, description and occupation
of the signatories to the MOA and number of
shares subscribed by them.
The number and values of shares.
Description of business to be undertaken.

4
Any provision in the AOA as to remuneration of
directors.
The names, occupation and description of
directors.
The time and date of the opening of subscription.
The financial statement of the company.
The profit and loss statement of the company.

5
Approval, issue and registration of
Prospectus
The prospectus of every company shall not be
issued, circulated, or published unless prior
approval of SECP, and for the purposes of
obtaining permission from SECP the company
must required to submit the prospectus sixty
days prior to subscription.
6
Penalty for wrongly issuance of
Prospectus
If a prospectus is issued in contravention of the
Ordinance, the company and every person, shall
be punishable with fine which may be extended
to five thousand rupees.
7
Terms in prospectus cannot be
changed
A company shall not, very the terms of the
contract specified in the prospectus, except prior
approval form the SECP.
8
Civil Liability for mis-statement in
prospectus
If a prospectus invites persons to subscribe for
shares or debentures of a company, and the
persons purchase such shares or debentures
while relying on the faith of the prospectus,
thereafter he sustain loss or damage then
following persons are liable for the loss:
Every person who is director of the company when the
prospectus was issued
Every person who is named in the prospectus
Every person who is a promoter of the company
Every person who has given consent in the issuance of
the prospectus
9
Exemption from civil-liability
Following persons are exempted from the Civil
Liability:-
Any person who is a director and he withdrew his
consent before the issue of the prospectus,
The prospectus was issued without his authority and
consent
The prospectus was issued without his knowledge and
consent
That after the issue of prospectus, but before the
allotment he withdrew his consent.
10
Criminal liability for misstatement
If a prospectus includes any untrue statement
every person who signed or authorized the issue
of the prospectus shall be punishable:
With imprisonment for a term of two years
With fine which may extent to ten thousand
With both
11
Newspaper advertisement of
Prospectus
Every prospectus for the public subscription
shall be published in the newspaper
advertisement.
12
Contents of Prospectus
Name of the company
Address of Registered office
Main business
Capital of the company
Existing paid up share capital
New paid up share capital
Capital to be raised
13
Associate and Subsidiary/ Holding Companies
Financial information and operational results
Management i.e. Chief Executive, Directors,
Company Secretary, Chief Accountant etc.
Feasibility Report
Plans and Future prospects.
14
Detailed process of Public Subscription
Approval by BOD
Application for obtaining permission for Public
Subscription from SECP.
When the permission is granted by the SECP the stock
exchange concerned is contacted for providing the date
for subscription and the bankers are contracted for the
purpose.
The approval remain valid for 60 days.
After the above process the Prospectus is published in at
least two dailies one English and other Urdu newspaper,
circulated in the province in which the stock exchange is
listed, exists.
15
Under writing
Securities underwriting refers to the process by
which investment banks or institutions raise
investment capital from investors on behalf of
corporations and governments that are issuing
securities (both equity and debt capital).

16
This is a way of selling a newly issued security, such
as stocks or bonds, to investors. A syndicate of banks
(the lead-managers) underwrite the transaction, which
means they have taken on the risk of distributing the
securities. Should they not be able to find enough
investors, they will have to hold some securities
themselves. Underwriters make their income from the
price difference (the "underwriting spread") between the
price they pay the issuer and what they collect from
investors or from broker-dealers who buy portions of the
offering.

17
Allotment
Shares and Debentures
Shares: these are the certificate of ownership in
the assets of the company.
Debentures: these are the loan certificates which a
company issues after obtaining loan from the
public.
Difference between Shares and Debentures
The common point between the two is that both
the certificates are issued by the Company, in
order to obtain finances from the public,
however there are certain differences between
the two;
Ownership:The shareholders are the owners of the
company, on the other hand the debenture holder
is just a creditor.
Profit : the share holder is entitled to receive the profit which a
company may get after the deduction of expenses, and if a
company does not obtain any profit during the year, the
shareholder will get nothing, the profit which is given to the
shareholders is known as Dividend on the other hand the
Debenture holder is entitled for a specific interest quarterly or
annually, and this interest is not linked with the profit of the
company.
Contract: there is no contract between the shareholder and the
company, while there is a loan agreement between the
company ad debenture holder.
Priority: in the case of the winding up of a
company, the debenture holders are given priority
upon the share holders towards the distribution of
assets of the company.
Allotment how made?
The company issues Prospectus/statement in
lieu of Prospectus, and applications are invited
for the subscription of shares or debentures.
The applications are EXAMINED
Balloting for successful candidates within ten
days of the closing of Subscription.

Refund of payment to unsuccessful candidates
within 10 days of the balloting
Allotment of shares
Listing in the stock exchange.
Issuance of certificates.
Restrictions on allotment
There are certain restrictions on the allotment of
shares and debentures;
No application shall be entertained unless it is accompanied
by such nominal price, specified by the SECP.
The applications must be in accordance with the form
specified by the SECP.
No allotment shall be made unless the minimum subscription
is raised, and the minimum subscription is to be calculated by
the BOD.

Separate Bank account
The company is required to open a separate
bank account for the purposes of obtaining
public subscription in a scheduled Bank.
Refund schedule
The company is required to refund the amount
to the un-successful candidates within ten days
after the balloting, and in case of failure every
director and officer responsible shall be liable to
pay a surcharge to the applicant along with the
damage he sustained.
Usage of Money
The money which is deposited with the company
regarding the purchase of shares or debentures
can only be used for that purpose, not else.
Further the company cannot obtain any benefit
from said deposited money.
Irregular allotment
Any allotment which is not made in accordance
with Companies Ordinance, is voidable, and any
application in this regard can be made out
within 30 days calculating from the date of
allotment, and if it is declared that allotment is
irregular then every responsible officer is liable
to compensate.