Prospectus ‑Advertisement in newspapers - Suggested proforma - Companies Law - No. 5(13)‑CL‑VI/62,

Circular No. 5(13) ‑ CL ‑ VI/62, dated 6 ‑ 2 ‑ 1962. Prospectus ‑ Advertisement in newspapers - Suggested proforma Section 56 which provides that every prospectus issued shall state the matters and the reports set out and specified respectively in Part I and Part II of Schedule II to the Act, read with Part III of that Schedule . Section 66 further provides that where any prospectus is published as a newspaper advertisement, it shall not be necessary in the advertisement to specify the contents of the memorandum of association or the signatories thereto, or the number of shares subscribed for by the signatories. As you may be aware, many companies offering shares or debentures to the public, have been publishing in newspapers and other publications, announcements of the issue of capital to the public. Such an announcement usually contains extracts from the prospectus as filed with the Registrar of Companies and is qualified with a note at the head of the announcement in bold characters, such as : This is only an announcement and not a prospectus This is only an announcement for information and not a prospectus and applications are invited on the prospectus, copies whereof are available from the company s registered office or underwriters, managing brokers or bankers mentioned thereunder This is only an announcement regarding the issue of prospectus. It is not a prospectus Announcement not being a prospectus or an invitation to the public to subscribe The announcements of the nature referred to above amount, in effect, to publication of prospectuses in an abridged form and such practice may be said to offend the provisions of section 56, with the consequent liability to penalties under the law and the individual civil liability of the directors and others. The prevalent practice is also fraught with danger to the investing public, because it would be possible for an unscrupulous management to omit certain material particulars from the prospectus, as published in newspapers, for the reason that such particulars may have the effect of dissuading prospective investors from subscribing for the new issue. This Department has had the matter under consideration for some time past and it has come to the conclusion that it would not be in conformity with the law or in the larger interests of the investing public if the practice of publishing abridged prospectuses were allowed to continue. In this connection, it has been suggested by certain responsible quarters that the Central Government should prescribe a suitable form in which company promoters and managements may make announcement of their intention to issue a prospectus. In support of this suggestion, it has been pointed out that in the UK and the USA only a bare announcement of the proposal of a company to issue its prospectus is published in newspapers, and prospective investors are expected to contact the brokers or bankers named in the announcement for copies of the prospectus and any other relevant particulars of the issue. The main reasons for not publishing the prospectus in full in newspapers are purported to be the high cost of advertising space the incidence of which in the case of a small issue would be very heavy, and the shortage of space in newspapers. Having carefully considered all the aspects of the question, this Department has come to the conclusion that the best solution would be to follow the practice obtaining in the USA and the UK, alluded to in the preceding paragraph. Accordingly, a proforma for making an announcement of the issue of a prospectus has been drafted by this Department for adoption by those company promoters and managements, who may not consider it possible to publish the full prospectus in newspapers and other publications. Where an announcement is to be made in the proforma, it will be essential to make such an announcement sufficiently in advance of the date on which the list will be opened for public subscription so as to allow sufficient time for the prospective investors to get copies of the prospectus and any other particulars relevant to the issue.