Public Offering of Securities

• Public Offer involves offering securities for sale to the public through a prospectus by an existing shareholder.

Meaning

• Sale of securities done via a prospectus
• Can occur through private placement
• Can occur through bonus shares or right shares

Prospectus

• Prospectus defined as any notice, circular, advertisement, or document that invites offers from the public to subscribe or purchase an entity's securities.
• Prospectus must be a written document.
• The offering of a public issue requires a demat account, a trading account, and a bank account.

Required Information in Prospectus

• Name and address of office.
• Opening and closing date of issue
• Registration details of prospectus.
• Written consent from experts named in the prospectus.
• Registrar consent copy
• Consent from individuals named in prospectus.
• Prospectus validity lasts only 90 days.
• Penalties apply if prospectus provisions aren't followed.

Deemed Prospectus

• A company may allocate shares or debentures to an issue house without intending to make them directly available to the public through a prospectus.
• The issue house then makes an offer for sale to the public.
• If an offer for sale was made within six months after the agreement to allot, and when the offer was made, the company had not yet received full consideration for the securities it is deemed a prospectus.
• When a company allots shares to an Issue House, which then makes an 'Offer for Sale' to the public, the document used by the Issue House for the 'Offer for Sale' is considered a prospectus issued by the company, even if the company didn't directly issue it.

Application Forms

• No application form is needed in the case of an abridged prospectus.
• An abridged prospectus is a memo that contains salient features as specified by SEBI, which gives the investor a summary to guide their decisions.

Shelf Prospectus

• Shelf prospectus are used by companies for multiple bond issues to raise funds.
• Public limited companies must issue a prospectus before offering securities.
• An example of this is the ICICI bank prospectus 1st Feb, 2021, then a FPO in july 6th, 2021
• A shelf prospectus is valid for 1 year.

Red Herring Prospectus

• A red herring prospectus is a preliminary document filed with the SEBI in connection to an IPO.
• A red herring prospectus excludes key details, like price and number of shares offered.
• A red herring states that a registration statement has been filed with the SEBI but is not yet effective.
• IPOs are typically 3 days.

Mis-statements in Prospectus

• Includes any wrong information being given by a Director, signatory, promoter, authorised person, or expert
• This could include giving compensation
• Involves withdrawal of consent
• Can have civil liability or even become a criminal matter

Remedies for Shareholders Due to Mis-statements

• Rescission of contract
• Material misrepresentation of fact.
• Untrue statement
• Omission of material fact.
• Damages for Deceit, decided at a tribunal

Remedies for Directors

• Withdrawal of consent
• Ignorance of untrue statement
• Reasonable ground for belief
• Statement of experts
• Liability of non-compliance
• Possible liability under general law