Monday, September 7, 2009

Statement in lieu of prospectus

Statement in lieu of prospectus

1. Do not want to Issue Prospectus

If a company does not want to issue a prospectus to the public for subscription of the shares, this statement is required to be issued to the public for necessary information. It must be signed by every person named in it as director or by his agent authorized in writing: The nature of the information of this document is more or less similar to that given in the prospectus. A copy of this statement must be filed with registrar within prescribed time. This provision does not apply to private company.

2. Share Certificate

A share certificate is a document issued under the common seal of the company and it states the extent of the interest of its holder in the company's capital. This certificate is usually given free of charge to every member whose name is entered in the register of members. It indicates the name, address and other particulars of the holder, the number of shares and the amount paid up on share held by him.

3. Share warrant

This document is issued under the common seal of the company in respect of fully paid up shares. It is a negotiable instrument which is transferable by mere delivery. It must be stamped - according to the market value of the shares. It may be issued with- coupons attached by means of which the holder is entitled to claim and dividend.

4. Common seal

Every company must have a common seal with its registered name engraved there in legible letters. It acts as the official signature of the company. Regulations governing the use and custody of the seal are laid down in the Articles of Association. It is generally to be used by the authority of the directors. It is not necessary to use it on all documents. But the seal is required on documents when demanded by the company Ordinance or Articles of Association i.e. debentures, share certificate or share warrant.

5. Dividend

A dividend is that portion of the company's net profit which is distributed among the shareholders in proportion to the number of shares holding. It is first declared at the Board of Directors Meeting which is finally approved by shareholders at the annual general meeting. Until a dividend is declared, no shareholders can claim any return on the capital he has invested in the: company. It must be paid out of the profits of the company. The directors are empowered to transfer some portion of profits to reserve fund before recommending a dividend.

6. Minimum subscription

It is the minimum amount of shares subscribed by public before the directors can proceed to allotment. The amount of minimum subscription fixed by the Memorandum or the Articles and named in the prospectus under the heading i.e. preliminary expenses, underwriting commission, working capital and repayment of loans. If no such amount is fixed then the whole of the capital offered for subscription must be subscribed by the public. This is intended to ensure that the company will not commence the business without adequate capital.

7. Transmission of shares

It signifies a change in ownership of the securities through the operation of law in case of death or insolvency of members. The right of member is automatically transferred to his legal representatives after his death. Similarly on becoming bankrupt, a member's shares may be transferred to trustee by operation of law. The trustee must, however, prove to the company that he is entitled to deal with bankrupt's shares.

8. Underwriting

The person who takes risk to purchase a specified number of the shares and debentures of a newly floated company is known as underwriter. He receives a commission in exchange of his services which is called underwriting commission. So the act of sale insurance by specialized person in consideration of commission is named as underwriting. Sometimes under writings does not want to take whole risk, he may transfer a part to sub underwriter which is arranged by means of contract.


  1. regarding statement in lieu of prospectus,why it is to be published,if the public issuance will not be made?please further clearify it.

  2. If a company does not want to issue a prospectus to the public for subscription of the shares, this statement is required to be issued to the public for necessary information. does it mean,that a company can raise necessary fund even from public?or is it said for private issuance or issuance to the targeted group??

  3. can a private company issue Statement in lieu of prospectus?

    1. (Section 70) does not apply to a private company

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