e Prospectus of a Company

Prospectus
After getting the company incorporated, promoters will raise finances. The
public is invited to purchase shares and debentures of the company through
an advertisement. A document containing detailed information about the
company and an invitation to the public subscribing to the share capital
and debentures is issued. This document is called prospectuses. Private
companies cannot issue a prospectus because they are strictly prohibited
from inviting the public to subscribe to their shares. Only public companies
can issue a prospectus. Section 2 (36) of the Companies Act defines
prospectus as, A prospectus means any document described or issued as
prospectus and includes any notice, circular, advertisement or other
documents invent deposits from public or inviting offers from the public for
the subscription or purchase of any shares in or debentures of a body
corporate.The prospectus is not an offer in the contractual sense but only
an invitation to offer. A document constructed to be a prospectus should be
issued to the public. A prospectus should have the following essentials.

There must be an invitation offering to the public.

The invitation must be made on behalf of the company or intended
company.
The invitation must to be subscribed or purchase.
The invitation must relate to shares or debentures.
A prospectus must be field with the Registrar of companies before it is
issued to the public. The issue of prospectus is essential when the company
wishes the public to purchase its shares or debentures.

If the promoters are confident of obtaining the required capital through

private contacts, even a public company may not issue a prospectus. The
promoters prepare a draft prospectus containing required information and
this document is known as a statement is lieu of prospectus. A prospectus
duly dated and signed by all the directors should be field with Register of
Company before it is issued to the public.
 A prospectus brings to the notice of the public that a new company has
been formed. The company tries to convince the public that it offers best
opportunity for their investment. A prospectus outlines a detail the terms
and conditions on which the shares or debentures have been offered to the
public. Every prospectus contains an application from on which an
intending investor can apply for the purchase of shares or debentures. A
company must get minimum subscription within 120 days from the issue of
prospectus. If it fails to obtain minimum subscription from the members of
the public within the specified period, then the amount already received
from public is returned. The company cannot get a certificate of
commencement of business because the public is not interested in that
company.

Contents
The following matters are to be disclosed in a prospectus:

Name and full address of the company.

Full particulars about the signatories to the memorandum of
association and the number of shares taken up by them.
The number and classes of shares. The interest of shareholders in the
property and profits of the company.
Name, address and occupations of members of the Board of Directors
or proposed Directors.
The minimum subscription fixed by promoters after taking into
account all financial requirements at the beginning.
If the company acquires any property from vendors, their full
particulars are to be given.
The full address of underwriters, if any, and the opinion of directors
that the underwriters have sufficient resources to meet their obligations.
The time of opening of the subscription list.
The nature and extent of interest of every promoter in the promotion
of the company.
 The amount payable on application, allotment and calls.
The particulars of preferential treatment given to any person for
subscribing shares or debentures.
Particulars about reserves and surpluses.
The amount of preliminary expenses.
The name and address of the auditor.
Particulars regarding voting rights at the meeting of the company.
A report by the auditors regarding the profits and losses of the
company.
These are some of the contents which every prospectus must include.
The prospectus is an advertisement of the company, so the company may
give any information which promotes its interest. Any information given in
the prospectus must be true, otherwise the subscribe can beheld guilty for
misrepresentation.
Statement in Lieu of Prospectus
A public company raises its capital from the public and it issues prospectus
for this purpose. Sometimes, the promoters of a company decide not to
approach the public for raising necessary capital. They are hopeful of
raising funds from the friends and relations or through underwriters. In
that case a prospectus need not be issued but a Statement in Lieu of
Prospectus must be field with the registrar at least three days before the
first allotment of shares. Such a statement must be singed by every person
who is named therein as a director or proposed director of the company.
This statement will be drafted strictly in accordance with the particulars set
out in a part I of Schedule III of the Act.

Prospectus is issued with the following broad objectives:

It informs the company about the formation of a new company.

It serves as a written evidence about the terms and conditions of issue
of shares or debentures of a company.
 It induces the investors to invest in the shares and debentures of the
company.
It describes the nature, extent and future prospectus of the company.
It maintains all authentic records on the issue and make the directors
liable for the misstatement in the prospectus.
Role of Prospectus in a Company
Many governments feel that if they allow private companies to issue prospectuses, the
opposition and other pressure groups may allege the involvement of government in the
malpractices of private companies. A company is bound to raise finances for its sustenance
and growth. For this purpose usually the public is invited to purchase shares and debenture
of the company through an announcement.

A document containing detailed information about the company and an invitation to the
public regarding subscription to shares and debentures is called a company prospectus. In
many countries private companies cannot issue a prospectus because they are sternly
forbidden from inviting the public to subscribe to their shares.

Only public companies can issue a prospectus. Actually this is done to avoid various kinds of
malpractices that private companies tend to indulge in. Many a time it has happened that
private companies have robbed public of their hard earned money.

So, many governments feel that if they allow private companies to issue prospectuses, the
opposition and other pressure groups may allege the involvement of government in the
malpractices of private companies.

Lets be clear about the fact that a prospectus is not an offer in the contractual sense but
only an invitation to offer. A document construed to be a prospectus should be issued to the
public.
A prospectus should have the fundamentals like, it must be an invitation offering to the
public and it must be made on the behalf of the company. A prospectus must be filed with
the registrar of companies before it is issued to the public.

If the promoters are certain of obtaining the requisite capital through private contacts, even
a public company may not issue a prospectus. The promoters prepare a summary
prospectus containing obligatory information and this document is known as a statement
representing a prospectus.

A prospectus duly dated and signed by all the directors is to be filed to the registrar. A
prospectus brings to the notice of the public that a new company has been formed.
The company tries to persuade the public that it will provide the best prospects for their
investment. A prospectus outlines in detail the terms and conditions on which the shares
have been offered. Usually, the orders for the procurement of shares are done via an
application that comes along with the prospectus.

Any misrepresentation in prospectus is treated as fraud

Even as the action moves to the Securities Appellate Tribunal in the case involving the capital
market regulator putting a ban on DLF Ltd and several of its directors, it may be worth taking a
look at what charges of misrepresentation in initial public offer prospectus means under the
Companies Act 2013.

Several company law experts and law firms that Business Standard spoke to did not want to be
quoted citing conflict in business interest. To start with, there is no specific definition of
misrepresentation in prospectus under the Companies Act, 2013. The way it is described is any
statement which is untrue or misleading in form or context in which it is included or where any
inclusion or omission of any matter is likely to mislead, said a corporate lawyer, quoting the Act.

Misrepresentation is construed as any statement which is made, which is false in

any material particulars, knowing it to be false, or which omits any material fact,
knowing it to be material, he added.

Civil and criminal liabilities follow if the promoters are found guilty of
misrepresentation. Section 34 of the Companies Act, 2013 deals with criminal
liability for misstatement it has the same liability as that of fraud under Section 447
of the Act.

As per Section 447 a person guilty of fraud shall be punishable with imprisonment
for a term ranging from six months to 10 years.
He is also liable to a fine, which can extend to three times the amount involved in
the fraud. In cases where the fraud involves public interest, the term of
imprisonment shall not be less than three years.
Since, in this case, an IPO public interest is involved, any misstatement in the
prospectus will lead to a minimum punishment of three years, said another lawyer.
Section 35 of the Companies Act provides for civil liability for misstatement in
prospectus.
Under Section 36, those liable to pay compensation include the directors of the
company at the time of the issue of the prospectus and the promoters, among
others, to every person who has sustained loss or damage.
According to Section 37 of the Act, those seeking compensation have to file a law
suit.
A corporate law expert said any claim made by an investor or a shareholder will
have to be proved in a court of law. The compensation will be decided by the court
bearing in mind the facts and circumstances of the case, he added.

Though the Companies Act provides for affected shareholders or investors to file
class action law suit against the company, however the provision will not get
invoked as this section in the Act is yet to be notified, said Rajesh Narain Gupta,
managing partner, SNG & Partners.
Civil liability for misstatements in prospectus.
(1) Where a person has subscribed for securities of a company acting on any
statement included, or the inclusion or omission of any matter, in the prospectus which is
misleading and has sustained any loss or damage as a consequence thereof, the company
and every person who
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorised himself to be named and is named in the prospectus as a
director of the company, or has agreed to become such director, either
immediately or
after an interval of time;
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred to in sub-section (5) of section 26,
shall, without prejudice to any punishment to which any person may be liable
under section
36, be liable to pay compensation to every person who has sustained such loss or
damage.
(2) No person shall be liable under sub-section (1), if he proves
(a) that, having consented to become a director of the company, he withdrew his
consent before the issue of the prospectus, and that it was issued without his
authority or consent; or
(b) that the prospectus was issued without his knowledge or consent, and that
on becoming aware of its issue, he forthwith gave a reasonable public notice that
it was issued without his knowledge or consent.
(3) Notwithstanding anything contained in this section, where it is proved that a
prospectus has been issued with intent to defraud the applicants for the securities of a
company or any other person or for any fraudulent purpose, every person referred to in
subsection
(1) shall be personally responsible, without any limitation of liability, for all or any of
the losses or damages that may have been incurred by any person who subscribed to the
 securities on the basis of such prospectus.
What is the Doctrine of Indoor Management?

According to this doctrine, persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly, once they are satisfied that the
transaction is in accordance with the memorandum and articles of association.

Shareholders, for example, need not enquire whether the necessary meeting was convened and
held properly or whether necessary resolution was passed properly. They are entitled to take it
for granted that the company had gone through all these proceedings in a regular manner.

The doctrine helps protect external members from the company and states that the people are
entitled to presume that internal proceedings are as per documents submitted with the Registrar
of Companies.

The doctrine of indoor management evolved around 150 years ago in the context of the doctrine
of constructive notice. The role of doctrine of indoor management is opposed to of the role of
doctrine of constructive notice.

Whereas the doctrine of constructive notice protects a company against outsiders, the doctrine of
indoor management protects outsiders against the actions of a company. This doctrine also is a
possible safeguard against the possibility of abusing the doctrine of constructive notice.

Basis for Doctrine of Indoor Management

1. What happens internal to a company is not a matter of public knowledge. An outsider can only
presume the intentions of a company, but not know the information he/she is not privy to.

2. If not for the doctrine, the company could escape creditors by denying the authority of
officials to act on its behalf.

Exceptions to Doctrine of Indoor Management

Knowledge of irregularity: In case this outsider has actual knowledge of irregularity within
the company, the benefit under the rule of indoor management would no longer be available. In
fact, he/she may well be considered part of the irregularity.

Negligence: If, with a minimum of effort, the irregularities within a company could be
discovered, the benefit of the rule of indoor management would not apply. The protection of the
rule is also not available where the circumstances surrounding the contract are so suspicious as to
invite inquiry, and the outsider dealing with the company does not make proper inquiry.
Forgery: The rule does not apply where a person relies upon a document that
turns out to be forged since nothing can validate forgery. A company can
never be held bound for forgeries committed by its officers.

ADVANTAGES AND DISADVANTAGES OF JOINT STOCK COMPANY

The company provides so many advantages that it is widely popular all

over the world. The advantages and disadvantages of joint stock company
are as follows :

Advantages

(1) Huge Financial Resources : A company can collect large sum of money
from large number of shareholders. There is no limit on the number of
shareholders in a public company. Since its capital is divided into shares
of small value even a person of small means can contribute to its capital
by simply purchasing its shares. It facilities the mobilization of savings of
millions for the productive purposes. In addition, a company can borrow
from banks to a large extent and also issue debentures to public.

(2) Limited Liability : The liability of shareholders in a company is limited

to the face value of the shares they have purchased. The limited liability
encourages many people to invest in shares of joint stock companies. If
the funds of a company are insufficient to satisfy the claims of the
creditors, no members can be called to pay anything more than the value
of shares held by them.

(3) Perpetual Existence : Due to its separate legal existence, it has

perpetual existence. The life of company is not dependent die or become
insolvent. The members of a company may go on a company. The stability
of business is of great importance to the society as well as to the nation.

(4) Transferability of Shares : The shares if a public company are freely

transferable. This transferability of shares brings about liquidity of
investment. It encourages many people to invest. It also helps a company
in tapping more resources.

(5) Diffusion of Risk : In sole proprietorship and in partnership business,

the risk is shared by few persons. But in company, the number of
shareholders is large, so many persons share risk. Therefore, the burden
of risk upon any individual is not huge. This attracts many investors. It
enables companies to take up new ventures.

(6) Efficient Management : In company ownership is separate from

management.
A company has enough resources to utilize the services of experts and
managers who may be highly specialized in different fields of
management. It can attract talented persons by offering them higher
salaries and better career opportunities. The efficient management will
help the company to take balanced decisions and can direct the affairs of
the company in the best possible manner. It also helps to expand and
diversify the activities of the company.

(7) Economies of Large Scale Production : Large scale production of

modern days is the result of company form of organization. This results in
economics in production, purchase, marketing and management. These
economies will help company to provide quality goods at lower cost to the
consumers.

(8) Democratic Management : The company is managed by the elected

representatives of shareholders called the directors. Directors are
responsible and accountable to the general body of shareholders.
Decisions are taken by a majority of votes completely based upon
democratic principles. This prevents in mismanagement of a company.

(9) Public Confidence : A company enjoys a greater public confidence and

reputation in the market due to legal control, publicity of accounts and
perpetual existence. Audit of Joint Stock Company is compulsory. A
companys financial accounts and statements are published , circulated
and are open to public inspection. Therefore public have enough faith in it.
So, it can get loan from different financial institutions.

(10) Social Importance : The company provides opportunity to mobilize

scattered savings of the community. It also creates employment
opportunities. Due to large-scale production consumers get cheaper
goods. The society is supplied with enough quantity of goods. Government
gets income in the form of taxes.

Disadvantages

(1) Difficulty in Formation : A company is not easy to form and establish. A

number of persons should be ready to associate for getting a company
incorporated. It requires a lot of legal formalities to be management does
not take personal interest in the workings of company. Hence, they may
work performed. The shares will have to be sold during the prescribed
time. It is both expensive and risky.

(2) Lack of Secrecy : A company has to observe many legal formalities.

Most of the business activities are decided through meetings. Profit and
Loss Accounts and Balance Sheet are required to be published. So trade
secrets cannot be maintained.

(3) Delay in Decisions : In company decisions making process is time

consuming. All important decisions are made by either Board of Directors
of by General Annual Meetings. So many opportunities may be lost due to
delay in decision making.

(4) Separation of Ownership and Management : A company is owned by

shareholders but managed by directors. The shareholders play an
insignificant role in the working of the company. Though directors are
owners of some qualification shares only, yet the result of their activities
are to be borne by all shareholders. The profit of the company belongs to
shareholders and the Board of Directors is paid only on a commission.
There is no direct relationship between efforts and rewards. So the
against the interest of vast majority of shareholders.

(5) Speculation in shares : The Joint Stock Companies facilitate speculation

in the shares at stock exchanges. It has been found that even the
directors and the managers of the company indulge in manipulating the
value of shares to their advantage. When they want to purchase the
shares they lower the rate of dividend and when they want to dispose of
the shares they declare dividends at a higher rate.

(6) Oligarchic Management : The shareholders who are the real owners do
not have much voice in the management. A handful of shareholders, which
also manage the affairs of the company, are able to have control over it.
Theoretically the company is democratic, but in practice it is mostly a case
of oligarchy (Rule by few). A few persons hold power and control and try
to exploit the majority. Thus, it does not promote the interest of the
shareholders in general.

(7) Excessive Regulation : A company has to observe excessive regulations

imposed by the law of the country. The excessive regulations are made
with a view to protect the interest of the shareholders and the public but
in practice they put obstacles in their normal and effective working. A lot
of precious time, efforts, and financial resources are wasted in complying
with statutory requirements.

(8) Conflict of Interest : In a company there are many parties whose

interest may clash and the result may be conflict of interests. The
management, the shareholders, the employees, the creditors and the
government may have their own individual interests. Thus, a permanent
type of conflict of interests may continue to exist in the companies. These
conflicts generally lead to inefficiency in the management and reduce
employee morale.

(9) Neglect of Minority : All major issues in company are decided by the
shareholders having majority of them. Majority group always dominate
over the minority group whose interest are never represented in the
management. The company act provides measures against oppression of
minority, but the measures are not very effective.

As compared with a public limited company, the additional advantages of

a private limited company are as follows:
1. There is a greater facility for the formation of a private company as
compared with a public company. The minimum shareholders may be only
one in private whereas there must be seven in the public company. Private
company does not invite public subscriptions to its shares.

2. A private company is free from certain restriction placed on a public

company. For instance a private company may start business after getting
the certificate of incorporation but public company must get certificate of
commencement of business. Private company need not issue prospectus.
No restrictions are placed on the allotment of shares and appointment of
directors.

From the above discussions, it may be concluded that the advantages of

company form of organization outnumber its weakness. It is clear that the
company is best suited for business, which requires huge capital and
maximum stability.

Lifting of Corporate Veil

A legal concept that separates the personality of a corporation from the
personalities of its shareholders, and protects them from being
personally liable for the company's debts and other obligations. This
protection is not ironclad or impenetrable. Where a court determines that
a company's business was not conducted in accordance with the
provisions of corporate legislation (or that it was just a faade for illegal
activities) it may hold the shareholders personally liable for the
company's obligations under the legal concept of lifting the corporate
veil.

Lifting the Corporate Veil Definition:

Disregarding the general rule a corporation is a legal entity distinct
from its shareholders by regarding the company as a mere agent or
puppet of a controlling shareholder or parent corporation.

In some jurisdictions, the courts prefer the term piercing the

corporate veil.

"As a general rule a corporation is a legal entity distinct from its

shareholders. The law on when a Court may disregard this principle
by lifting the corporate veil and regarding the company as a
mere agent or puppet of its controlling shareholder or parent
corporation follows no consistent principle. The best that can be said
is that the separate entities principle is not enforced when it would
yield a result too flagrantly opposed to justice (or) convenience .... I
have no doubt that theoretically the veil could be lifted in this case to
do justice...."

Canada's national law digest, the C.E.D., proposes the law as

follows:

"To pierce or lift the corporate veil is to disregard the separate

personality of a company and to deal instead with the economic
interests lying behind the legal facade of the company. In certain
cases legislation has provided express authority for piercing the
corporate veil and affixing liability on shareholders, directors or
other persons in effective control of the corporation, or some
relevant aspect of its activities.
"It has been suggested that the courts may pierce the corporate veil
in a wide range of situations, primarily on the basis of whether the
corporation and its shareholders are factually distinct. However, this
extreme position has gathered little support from the time when it
was first put forward. Thus the courts are generally unwilling to
pierce the corporate veil, and will do so only where required by
statute or where extraordinary circumstances exist.

"Cases falling within the latter category fall within a narrow

compass. Taking advantage of the limited liability of a corporation
per se is not improper. A person who chooses to deal with a
corporation is limited in recourse to whatever assets the corporation
itself possesses. There is a presumption that a transaction is what it
purports to be, thus as a general rule a contract made by
a corporation will not be imputed back to the owner of the
corporation on an agency basis unless it can be shown that both
parties so intended at the time of the formation of the contract. The
overwhelming current in the case law is that the separate status of a
corporation must be respected."

Always looking up definitions? Save time with our search provider

(modern browsers only)

If you find an error or omission in Duhaime's Law Dictionary, or if

you have suggestion for a legal term, we'd love to hear from you!

WHAT IS Limited Liability Partnership

Limited Liability Partnership entities, the world wide recognized form of
business organization has been introduced in India by way of Limited
Liability Partnership Act, 2008. A Limited Liability Partnership, popularly
known as LLP combines the advantages of both the Company and
Partnership into a single form of organization. In an LLP one partner is not
responsible or liable for another partner's misconduct or negligence, this is
an important difference from that of a unlimited partnership. In an LLP, all
partners have a form of limited liability for each individual's protection
within the partnership, similar to that of the shareholders of a corporation.
However, unlike corporate shareholders, the partners have the right to
manage the business directly.An LLP also limits the personal liability of a
partner for the errors, omissions, incompetence, or negligence of the LLP's
employees or other agents.Limited Liability Partnership is managed as per
the LLP Agreement, however in the absence of such agreement the LLP
would be governed by the framework provided in Schedule 1 of Limited
Liability Partnership Act, 2008 which describes the matters relating to
mutual rights and duties of partners of the LLP and of the limited liability
partnership and its partners. LLP has a separate legal entity, liable to the full
extent of its assets, the liability of the partners would be limited to their
agreed contribution in the LLP. Further, no partner would be liable on
account of the independent or un-authorized actions of other partners, thus
allowing individual partners to be shielded from joint liability created by
another partners wrongful business decisions or misconduct.

Limited Liability Partnership Act, 2008 came into effect by way of

notification dated 31st March 2009.

Advantages

Renowned and accepted form of business worldwide in

comparison to Company.

Low cost of Formation.

Easy to establish.

Easy to manage & run.

No requirement of any minimum capital contribution.

No restrictions as to maximum number of partners.

 LLP & its partners are distinct from each other.

Partners are not liable for Act of partners.

Less Compliance level.

No exposure to personal assets of the partners except in

case of fraud.

Less requirement as to maintenance of statutory records.

Less Government Intervention.

Easy to dissolve or wind-up.

Professionals can form Multi-disciplinary Professional LLP,

which was not allowed earlier.

Audit requirement only in case of contributions exceeding

Rs. 25 lakh or turnover exceeding Rs. 40 lakh.

Disadvantages.

Any act of the partner without the other partner, may bind
the LLP.

Under some cases, liability may extend to personal assets

of partners.

Cannot raise money from Public.

Overview of Key Provisions of Companies Act 2013

1.Number of sections are reduced from 658 Sections and 15 Schedules in
old Act to 470 sections and 7 schedules in new bill.

2.A very substantial part of the Bill will be in form of rules, which will be
prescribed separately. This paves way of or changes to operational prov
isions of Act without amendment and parliament nod.

3.The Government of India, has the power to Notify different provision of

the Act at different point of time.

4.The Bill prescribes 33 new definitions.

5.Language in general has been simple but in some places drafting could
have been better.

Key Concerns - Summary

NFRA : This being constituted without the concept paper being discussed and
stakeholders comments received may not be appropriate.

Too many matters left to the rules and the rules proposed are not yet clear

Penalties: The penalties and the liabilities being substantially increased without looking
at the nature of the offence.

A firm to be debarred when one partner is found guilty is of a serious co

Increase in partnership number from 20 to 100 without discussion .

Key Concerns - Summary

One Person Company

Person not defined so, even companies etc., could form a one person company

Foreign nationals / companies / entities forming a one person company

Interested director

Clause 184 (2) now also provides for interested director not participating in such
contracts in board meetings

There is no specific requirement that promoter / director must vote on such

interested contracts and record their views to make them primarily liable!

Key Concerns Summary

Auditors a firm where majority of partners are chartered accountants Does this pave
way for a firm which has non CAs as members?

This is also against the ethical standards of ICAI

Conflict of interest extended with far reaching consequences

Shareholding is extended to company, holding, associate, co-subsidiary etc., and also

extended to relatives also (Relatives can hold up to Rs.1000 or such sum as may be
prescribed)
 Indebtedness and guarantee also extended to group entities as above and also to
relatives

Not to have business relationships directly or indirectly with any group entity (of such
nature as prescribed)

Key Concerns Summary

Conflicting services by auditors (even for OPC and Private Companies)

New clause. Specified services cannot be done

Covers auditor, firm and also all other entities they are related to actual coverage
needs to be clarified

Covers not only the company but its holding coy subsidiary and associate

Any non specified services also only with Board approval

Auditor Rotation

Mandatory rotation of auditor for listed / prescribed class of companies

Change is only by special resolution

Right to terminate (by special resolution and previous CG clearance) / right to resign
exists in between also

Members can resolve seeking rotation of team / partner each year

Also, members can seek conduct of audit by more than one auditor

Key Concerns Summary

At least one Director required to stay in India for 182 days

Presently foreign companies could have all foreign directors

Top 10 shareholders holding changes

All listed entities are required to file changes in shareholding of top ten shareholders
and promoters within 15 days of such change!

In the market there could be changes happening each day!

Internal auditor

There is a need to clarify that it could be a firm of CAs / CWAs...

New Concepts

One person Company

Provisions of entrenchment in AOA

National Financial Reporting Authority (NFRA) from NACAS

More than advisory; Charged with monitoring and enforcement

Investigate into professional or other misconduct

CSR obligations on every company having networth of Rs.500 crore or more or

turnover of Rs.1,000 crore or more or net profit of Rs.5 crore or more

Company to spend 2% of its average NP for 3 years

Provision for cross border mergers

Registered Valuers

Concept of Dormant Company

CG empowers to prescribe restrictions on layers of subsidiaries

Business Friendly
Speedy incorporation process

Private limited members limit enhanced to 200

Simpler and single forum approval for M&A

Simple and short process for holding and WOS or small companies

Concept of deemed approval in some cases

Squeeze out provisions purchase of minority shareholding when 90% holding

reached

Simplified process for voluntary removal of name from register

E-enable
Voting through electronic means by members at meeting

Board meetings can be held by video conferencing / electronic means

 Such participation will count for quorum too

Maintenance and allowing inspection of documents by companies in electronics form

Key highlights of new Indian Companies Act 2013

The Companies Act 2013 passed by the Parliament received the assent of the President of India
on 29th August 2013. The Act consolidates and amends the law relating to companies. The
Companies Act 2013 was notified in the Official Gazette on 30th August 2013. Download the
complete Act: Companies Act 2013. Some of the provisions of the Act have been implemented
by a notification published on 12th September, 2013. The provisions of Companies Act 1956 are
still in force.

Parliament approved the long-awaited overhaul of legislation governing Indian companies on 9

August 2013. The new law is aimed at easing the process of doing business in India and
improving corporate governance by making companies more accountable. The 2013 Act also
introduces new concepts such as one Person Company, small company, dormant company and
corporate social responsibility (CSR) etc. The Act introduces significant changes in the
provisions related to governance, e-management, compliance and enforcement, disclosure
norms, auditors, mergers and acquisitions, class action suits and registered valuers. The act is
now in force w.e.f. 1st April 2014.

There are more than 450 + sections, 7 schedules and 29 chapters, but today we will highlight few
important ones which may be relevant to financial advisors who transact business as a Pvt. Ltd.
Company or Small company (as per the new definition) or for those who would like to start an
One person Company. Under any circumstances this is not an exhaustive list. Those who are
interested may visit http://www.mca.gov.in to get the complete details about the Companies Act
2013

Introduction of One Person Company (OPC)

-

It's a Private Company having only one Member and at least One Director. This concept is
already prevalent in the Europe, USA, China, Singapore and in several countries in the Gulf
region. It was first recommended in India by an expert committee (headed by Dr. J.J. Irani) in
2005. The one basic pre-requisite to incorporate an OPC is that the only natural-born citizens of
India, including small businessmen, entrepreneurs, artisans, weavers or traders among others can
take advantage of the One Person Company (OPC) concept outlined in the new Companies Act.
The OPC shall have minimum paid up capital of INR 1 Lac and shall have no compulsion to
hold AGM (Annual General meeting).
What is a small Company
-

It means a company, other than a public company, paid-up share capital of which does not
exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more
than five crorerupees; or turnover of which as per its last profit and loss account does not exceed
two Crore rupees or such higher amount as may be prescribed which shall not be more than
twenty Crore rupees. The 2013 Act provides exemptions to Small Companies primarily from
certain requirements relating to board meeting, presentation of cash flow statement and certain
merger process

Minimum members for private company

The new act has increased the limit of the number of members from 50 to 200.

Immediate changes in stationery

-The letterhead, bills or invoices, quotations, emails, publications & notifications, letters or other
official communications, should bear the full name of contact person, address of companys
registered office, Corporate Identity Number ( CIN No. which is a 21 digit number allotted by
Government), Telephone number, fax number, Email id, contact website (if any).

Articles of Association
- In the next General Meeting, it is desirable to adopt Table F as standard set of
Articles of Association of the Company with relevant changes to suite the
requirements of the company. Further, every copy of Memorandum and Articles
(MOA) issued to members should contain a copy of all resolutions / agreements that
are required to be filed with the Registrar of companies (ROC).

Commencement of business
For all the companies (public/private company) registered under Companies Act
2013 needs to file the following with the Registrar of Companies (ROC) in order to
commence their business

1A declaration by the director in prescribed form stating that the subscribers/

promoters to the memorandum have paid the value of shares agreed to be taken by
them

2..A confirmation that the company has filed a verification of its registered office
with the Registrar of companies (ROC)

In the case of a company requiring registration from any sectoral regulators such as RBI, SEBI
etc., approval from such regulator shall be required prior to starting the business.
Financial Year
- The Companies Act 1956 Act provided companies to elect financial year. The
Companies Act 2013 Act eliminates the existing flexibility in having a financial year
different than 31 March. The 2013 Act provides that the financial year for all
companies should end on 31 March, with certain exceptions approved by the
National Company Law Tribunal. Companies should align the financial year to 31
March within two years from 01 April 2014.

Eligibility age to become Managing Director or whole time

Director
- The eligibility criteria for the age limit has been revised to 21 years as against the
existing requirement of 25 years.

Number of directorships held by an individual

- Section 165 provides that a person cannot have directorships (including alternate
directorships) in more than 20 (twenty)companies, including ten (ten) public
companies. It provides a transition period of one year from 1 April 2014 to comply
with this requirement

Board of Directors and Disqualifications for appointment of

director
- The 2013 Act requires that the company shall have a maximum of 15 (fifteen)
directors (earlier it was 12) and appointing more than 15 (fifteen) directors will
require special resolution by shareholders.

Further, it requires appointment of at least one woman director on the board for prescribed class
of companies. It also requires that company should have at least 1 (one) resident director i.e. who
has stayed in India for a total period of not less than 182 (hundred and eighty two days) in the
previous calendar year.

All existing directors must have Directors Identification Number (DIN) allotted by central
government. Directors who already have DIN need not take any action. However, Directors not
having DIN should initiate the process of getting DIN allotted to him and inform the respective
companies on which he is a director. The Company, in turn, has to inform the registrar of
companies (ROC).

Independent Directors
- The 2013 Act defines the term "Independent Director" . In case of listed
companies, one third of the board of directors should be independent directors.
There is a transition period of 1 (one) year form 01 April 2014 to comply with this
requirement. The 2013 Act also provides additional qualifications/ restrictions for
independent directors as compared to the 1956 Act.Section 150 enables manner of
selection of independent directors and maintenance of databank of independent
directors and enables their selection out of data bank maintained by a prescribed
body

Resident Director:
Every Company must have atleast one director who has stayed in India for a total period of 182
days or more in previous calendar year. For existing companies, the compliance need to be made
before 31st March 2015.

Loans to director
The Company cannot advance any kind of loan / guarantee / security to any
director, Director of holding company, his / her partner/s, his/ her relative/s, Firm in
which he or his relative is partner, private limited in which he is director or member
or any bodies corporate whose 25% or more of total voting power or Board of
Directors is controlled by him.

Appointment of managing director, whole time director or

manager [section 196 of 2013 Act]
- The re-appointment of a managerial person cannot be made earlier than one year
before the expiry of the term instead of two years as per the existing provision of
section 317 of the 1956 Act. However, the term for which managerial personnel can
be appointed remains as five years. Further, the 2013 Act lifts the upper bar for age
limit and thus an individual above the age of 70 years can be appointed as key
managerial personnel by passing a special resolution.

Key Managerial Personnel (KMP)

- The Provisions relating to appointment of KMP includes (i) the Chief Executive
Officer (CEO) or the managing director (MD) or the manager (ii) the company
secretary (iii) the whole-time director; (iv) the Chief Financial Officer (CFO); and (v)
such other officer as may be prescribed is applicable only for Public Limited
Companies having paid up capital more than 10 crores and Private Limited
Companies are exempted from appointment of KMPs.

Attending Board Meetings

- As per section 167 of the Act, a Director shall vacate his/her office if he/she
absents himself from all the meetings of the Board of Directors held during a period
of 12 (twelve months) with or without seeking leave of absence of the Board. Simply
speaking, attending at least one Board Meeting by a director in a year is a must else
he has to vacate his/her office.

Board meetings
- Atleast 7 days notice to be given for Board Meeting. The Board need to meet
atleast 4 times within a year. There should not be a gap of more than 120 days
between two consecutive meetings.
Appointment of Statutory Auditors
- Every Listed company can appoint an individual auditor for 5 years and a firm of
auditors for 10 years. This period of 5 / 10 years commences from the date of their
appointment. Therefore, those companies who have reappointed their statutory
auditors for more than 5 / 10 years, have to appoint another auditor in their Annual
General Meeting for year 2014.

Other specialized services which cannot be provided by

Statutory Auditors
- The Statutory Auditor of the Company cannot give following specialized services
directly or indirectly to the company 1.Accounting and book keeping services2 )
Internal audit 3 )Design and implementation of any financial information system
5)Actuarial services6)Investment advisory services.7)Investment banking
services.8)Rendering of outsourced financial services.9)Management and/or any
other services as may be prescribed

Corporate Social Responsibility (CSR)

the company has to constitute a CSR committee of the Board and 2% of the
average net profits of the last three financial years are to be mandatorily spent on
CSR activities by an Indian company if any of the following criteria is met:..Net
worth of Rs.500 crores or Turnover of Rs. 1000 crores or more or Net profit of Rs. 5
crores or more

Contributing to Incubators, which has been notified by the Government of India, is eligible for
spending under CSR. This is a prosperous time for incubators and entrepreneurs and can really
change the entrepreneurial eco system in India.

Financial statements
- Financial Statements are now defined under the Act as comprising of the following.
All companies (except one person Company, small company and dormant
company)are now mandatorily required to maintain the following, which may not
include the cash flow statement)

1)A balance sheet as at the end of the financial year2 )A profit and loss
account / an income and expenditure account for the financial year, as the
case may be 3)Cash flow statement for the financial year.4)A statement of
changes in equity (if applicable) ..4)Any explanatory note annexed to, or
forming part of, any document referred to in sub-clause (i) to sub-clause (iv)

Important stages in the formation of a company

The whole process of company formation can be divided into four stages as given below.

1. Promotion of a Company
 2. Registration of a Company

3. Certificate of Incorporation; and

4. Commencement of the Business.

1. Promotion of a Company:

A business enterprise does not come into existence on its own. It comes into existence as a
result of the efforts of an individual or group of people or an institution. That is, it has to be
promoted by some person or persons. The process of business promotion begins with the
conceiving of an idea and ends when that idea is translated into action i.e., the
establishment of the business enterprise and commencement of its business.

Who is a Promoter in a Company?

A successful promoter is a creator of wealth and an economic prophet. The person who is
concerned with the promotion of business enterprise is known as the Promoter. He
conceives the idea of starting a business and takes all the measures required for bringing
the enterprise into existence. For example, Dhirubhai Ambani is the promoter of Reliance
Industries.The promoters find out the ways to collect money, investigate business ideas
arranges for finance, assembles resources and establishes a going concern.The company
law has not given any legal status to promoters. He stands in a fiduciary position.

Types of Promoters

Promoters are different types such as professional promoters, occasional promoters,

promoter companies, financial promoters, entrepreneurs, lawyers and engineers.

2. Registration of a Company

It is registration that brings a company into existence. A company is properly formed only
when it is duly registered under the Companies Act.

Procedure of Registration

In order to get the company registered, the important documents required to be filed with
the Registrar of Companies are as follows.

1. Memorandum of Association: It is to be signed by a minimum of 7 persons for a public

company and by 2 in case of a pvt company. It must be properly stamped.

2. Articles of Association: This document is signed by all those persons who have signed the
Memorandum of Association.
3. List of Directors: A list of directors with their names, address and occupation is to be
prepared and filed with the Registrar of Companies.

4. Written consent of the Directors: A written consent of the directors that they have agreed
to act as directors has to be filed with the Registrar along with a written undertaking to the
effect that they will take qualification shares and will pay for them.

5. Notice of the Address of the Registered Office: It is also customary to file the notice of the
address of the companys registered office at the time of incorporation. It is to be given
within 30 days after the date of incorporation.

6. Statutory Declaration: A statutory declaration by

a. any advocate of the Supreme Court or

b. of a High Court, or

c. an attorney or pleader entitled to appear before a High Court or

d. a practicing chartered accountant in India, who engages in the

Company formation or

e. by a person indicated in the articles as director, managing director,

Secretary or manager of the company, mentioning that the
requisites of the Act and the rules there under have been complied
with. It is to be filed with the Registrar of Companies.

When the required documents have been filed with the Registrar along with the prescribed
fee, the Registrar scrutinizes the documents. If the Registrar is satisfied, the name of the
company is entered in the register. Then the Registrar issues a certificate known as
Certificate of Incorporation.

3. Certificate of Incorporation

On the registration of Memorandum of Association, Articles of Association and other

documents, the Registrar will issue a certificate known as the Certificate of
Incorporation. The issue of certificate is the evidence of the fact that the company is
incorporated and the requirements of the Companies Act have been complied with.

4. Certificate of Commencement of Business

As soon as a private company gets the certification of incorporation, it can can commence
its business. A public company can commence its business only after getting the certificate
of commencement of business. After the company gets the certificate of incorporation, a
public company issues a prospectus for inviting the public to subscribe to its share capital.
It fixes the minimum subscription. Then it is required to sell the minimum number of
shares mentioned in the prospectus.

After completing the sale of the required number of shares, a certificate is sent to the
Registrar along with a letter from the bank stating that all the money is received.

The Registrar then scrutinizes the documents. If he is satisfied he issues a certificate known
as Certificate of Commencement of Business. This is the conclusive evidence for the
Commencement of Business.

Duties and Liabilities of Promoters of a Company

, A promoter is one who undertakes to form a company
with reference to a given object and sets it going and
takes the necessary steps to accomplish that purpose

Classification of Promoters.

Promoter may further be divided into three classes

1. Professional promoters

2. Occasional promoters

3. Promoters

Professional promoters

The professional promoters as the name signifies are the

person who forms or float the company as their
profession. When the company is incorporated, they either
get the commission or a fixed amount for the formation of
a company or get it going.

2. The occasional promoters:

Occasional promoters are that person who undertakes to

form a company occasionally and take the forming or
floating of a company as their part time job.
 3. The person who makes all investigating, preparation
and arrangements for incorporating a company are
called promoters. The professional promoter and
occasional promoter generally retire after the
company is floated. The promoters, the third
category, float the company for their own self-interest
and take an active part for its successful operation.

Functions or duties of a Promoter of Company:

The main duties of promoters under common law are as

follow;

1. To discover and idea for establishing a company.

2. To make detailed investigating about the demand for

the product, availability of power labor, raw material
etc

3. To find out the suitable person who are willing to act

as first directors of the company and are ready to
sign the memorandum of association.

4. To select bank, legal advisor, auditors, underwriters

for the company

5. To prepare essential documents of the company

6. To prepare a draft of the memorandum of association,

articles of association prospectus of the company and
get them printed.

7. To submit all the documents, required for

incorporation with the registrar.

8. To arrange for advertisement of the prospectus of the

company in the newspaper.

9. To meeting all preliminary expenses for floating of a

company.
 10. To make contracts with vendors, underwriter and
managing director of the company.

11. To raise the required finances and get the

company going

12. To make proper arrangement for the office of the

company

Rights of promoters

1. Right to receive preliminary expenses

2. Right to receive remuneration for their services.

3. Rights to receive the proportionate money from co-

promoters.

Liability of the promoters of Company:

1. To disclose the liability and pay the secret profits if

promoters have earned.

2. Liability is up to the completion of contracts.

3. Liability for statutory mistakes or fraud in the

prospectus.

4. His property becomes liable for payment even after

his death.

Role of promoters of Company

Company promoters play an essential role in the formation

of a company. A company is born only when it is duly
incorporated. For including a company various documents
are to be prepared and other formalities are to be
complied with. All this work is done by promoters.
 Gerstenberg has defined promotion as the discovery of
business opportunities and the subsequent, organization
of fun and property and managerial ability into a business
concern for the purpose of making profits therefrom. After
the idea is conceived, what promoter does is to make
detailed investigations to find out the weaknesses and
strong points of the idea, determine the amount of capital
required and estimate the operating expenses and
probable income. On being satisfied with the economic
viability of the idea, the promoters take all the necessary
steps for incorporating the company and start changing
peoples lives.

Legal position of Promoter in a Company:

The promoters inhibit a key position and have extensive

powers relating to the formation of a company. It is,
however, interesting to note that so far as the legal
position is concerned, he is neither an agent nor a trustee
of the proposed company. But it does not mean that the
promoter does not have any legal relationship with the
proposed company. The promoters stand in a fiduciary
relation to the company they promote and to those
persons, whom they induce to become shareholders in it.

Definition of 'Shares'
The capital of a company is divided into shares. Each share forms a unit of ownership of
a company and is offered for sale so as to raise capital for the company.
Shares can be broadly divided into two categories - equity and preference shares. Equity
shares give their holders the power to share the earnings/profits in the company as well as a
vote in the AGMs of the company. Such a shareholder has to share the profits and also bear the
losses incurred by the company.
On the other hand, preference shares earn their holders only dividends, which are fixed, giving
no voting rights. Equity shareholders are regarded as the real owners of the company. When the
shares are offered for sale directly by the company for the first time, they are offered in the
primary market, whereas the trading of shares takes place in the secondary market.
Home
 BANKING
BUSINESS
ECONOMICS
FINANCE
HRM
MANAGEMENT
TAXATION
Meaning And Types Of Share Capital

Meaning Of Share Capital

A joint stock company should have capital in order to finance its activities. It raises its capital by issue of
shares. The Memorandum of Association must state the amount of capital with which the company is
desired to be registered and the number of shares into which it is to be divided. When total capital of a
company is divided into shares, then it is called share capital. It constitutes the basis of the capital
structure of a company. In other words, the capital collected by a joint stock company for its business
operation is known as share capital. Share capital is the total amount of capital collected from its
shareholders for achieving the common goal of the company as stated in Memorandum of Association.

Types Of Share Capital

Share capital of a company can be divided into the following different categories:

1. Authorized, registered, maximum or normal capital

The maximum amount of capital, which a company is authorized to raise from the public by the issue of
shares, is known as authorized capital. It is a capital with which a company is registered, therefore it is
also known as registered capital.

2.Issued Capital
Generally, a company does not issue its authorized capital to the public for subscription, but issues a part
of it. So, issued capital is a part of authorized capital, which is offered to the public for subscription,
including shares offered to the vendor for consideration other than cash. The part of authorized capital not
offered for subscription to the public is known as 'un-issued capital'. Such capital can be offered to the
public at a later date.

3.Subscribed Capital
It can not be said that the entire issued capital will be taken up or subscribed by the public. It may be
subscribed in full or in part. The part of issued capital, which is subscribed by the public, is known as
subscribed ccapital

4.Called Up Capital
It is that part of subscribed capital, which is called by the company to pay on shares allotted. It is not
necessary for the company to call for the entire amount on shares subscribed for by shareholders. The
amount, which is not called on subscribed shares, is called uncalled capital.

5. Paid-up Capital
It is that part of called up capital, which actually paid by the shareholders. Therefore it is known as real
capital of the company. Whenever a particular amount is called and a shareholder fails to pay the amount
fully or partially, it is known an unpaid calls or calls in arrears.
Paid-up Capital = Called up capital - calls in arrears

6. Reserve Capital
It is that part of uncalled capital which has been reserved by the company by passing a special resolution
to be called only in the event of its liquidation. This capital can not be called up during the existence of the
company.It would be available only in the event of liquidation as an additional security to the creditors of
the company

Related Topics
Meaning Of Equity Shares, Ordinary Shares Or Common Stock
Meaning And Types Of Preference Shares
Distinction Between Equity Share And Preference Share

What are the required guidelines for issuing fresh share capital ?

The Ministry of Finance (Deptt. of Economic Affairs), Office of the Controller of Capital Issues,
issued a press note on 14th May 1975 prescribing the guidelines for issue of fresh share capital.

Under the Capital Issues (Control) Act, 1947 all companies whose issue of share Capital is not
specifically excluded by the Capital Issues (Exemption) Order,1969, are required to obtain the
approval of the Controller of Capital Issues in the form of a letter of acknowledgement or a
consent. The guidelines for the examination of Issue of Share Capital other than Bonus Shares
are indicated below for the guidance of such companies.
17 essential steps for for issuing fresh share capital

1. All applications should be submitted to the Controller of Capital Issues in the prescribed form
duly accompanied by a Treasury Challan for fees payable under the Act,

2. The applications should be accompanied by a true copy of the Industrial License, wherever
necessary, or registration with the Director General, Technical Development, for the project.

3. A realistic estimate of the project cost will be furnished together with the precise scheme of
finance. In respect of financial assistance from the financial institutions, copies of their letters
indicating their participation in the financing of the capital cost should be forwarded.

4. Where issue of substantial amount is proposed to be made or where listing is a requirement of

the financial institutions providing assistance, the company should have the shares issued to the
public and listed in one or more recognized Stock Exchanges except in case of listed company
where it is proposed to issue as Right Shares.

5. Where the issue of equity capital involves an offer for subscription by the public for the first
time, the value of equity capital subscribed privately by the promoters, directors and their friends
shall not be less than fifteen per cent of the total issued equity capital, if it does not exceed one
crore of rupees, twelve-and-a half per cent, if it does not exceed two crores of rupees and ten per
cent, if it is in excess of two crores of rupees.

6. Ordinarily issue of shares for consideration other than cash is not permitted. In exceptional
cases where the parties desire that shares should be allowed in lieu of the assets transferred,
detailed information in regard to the valuation of such assets together with the copies of
necessary valuation reports be furnished.

7. In case of companies registered under the M.R.T.P. Act, they are advised to ensure that the
requisite approval under the M.R.T.P. Act has been obtained before making an application to the
Controller of Capital Issues.

8. To finance the capital cost of the project, the capital structure should be such that an equity
debt ratio of 1 : 2 is considered fair and reasonable. In case of capital intensive industries, a
higher equity debt ratio can be considered on merits of such case.

9. An equity preference ratio of 3 : 1 is normally permitted.

10. The rate of dividend on preference shares should be within the ceiling as notified by the
Controller of Capital issues from time to time.

11. No premium is allowed in respect of a new company making its first issue of shares.
12. There should be satisfactory underwriting arrangements in respect of new issues and the
names of underwriters together with the amounts underwritten should be indicated in the
application, except it case of Right Shares.

13. No company is expected to make an allotment of shares to nonresidents except with the prior
approval in writing of the Government of India or of the Reserve Bank of India and a copy of
such approval should be attached to the application if the shares are proposed to be allotted to
non-residents.

14. If any firm allotment is intended to be given in favour of the public financial institutions, the
particulars thereof should be furnished in the application.

15. Any arrangement reached by the company or commitment made prior to the issue of the
capital which has a significant impact on the capital, cost estimate or the capital structure of the
company, the same may be disclosed along with the application.

16. A certificate duly signed by the Secretary and/or Director of the company stating that the
information furnished is complete and correct, be annexed to the application. Similarly a
certificate from the Auditors of the company stating that the information in the application has
been verified by them and is found to be true and correct to the best of their knowledge and
information, be furnished.

17. Before making an application to the Controller of Capital Issues for issue of fresh share
capital as rights shares, companies are further required to give in a letter addressed to the
existing shareholders information in sufficient details as to how they propose to utilize the
additional moneys that are being raised by the rights issue and give some broad ideas of the
future earnings after the investment of such additional capital. (This guideline has been added
with a view to enabling the shareholders to decide well in advance whether they should subscribe
or not to the rights issue).

Private Placement
What is a 'Private Placement'

A private placement is the sale of securities to a relatively small number of select

investors as a way of raising capital. Investors involved in private placements are
usually large banks, mutual funds, insurance companies andpension funds. A
private placement is different from a public issue, in which securities are made available
for sale on the open market to any type of investor.
BREAKING DOWN 'Private Placement'

Since a private placement is offered to a few select individuals, the placement does not
have to be registered with the Securities and Exchange Commission(SEC). In many
cases, detailed financial information is not disclosed and the investment is not sold
by prospectus.

How Securities Are Regulated

The SEC regulates how securities are sold to the public through the Securities Act of
1933. This law was put into place after the stock market crash of 1929 to ensure that
investors receive sufficient disclosure when they purchase securities. If a company
wants to issue stocks or bonds to the public, it must register with the SEC and sell the
security using a prospectus.

Regulation D of the 1933 Act provides an exemption to the prospectus requirement. The
regulation allows an issuer to sell securities to a limited number of accredited
investors or sophisticated investorswith a high net worth. Instead of a prospectus, these
securities are sold using a private placement memorandum (PPM) and cannot be
broadly marketed to the general public.

Factoring in Advantages

The private placement regulations allow an issuer to avoid the time and expense of
registering with the SEC and creating a prospectus. The process of underwriting the
security is faster, which allows the issuer to receive proceeds from the sale in less time.
If an issuer is selling a bond, it can also avoid the time and expense to get a credit
rating from a bond agency. A private placement issuer can sell a more complex security
to sophisticated investors who understand the potential risks and rewards, and the firm
can remain a privately owned company, which avoids the need to file annual disclosures
with the SEC.

Disadvantages

The buyer of a private placement bond issue expects a higher rate of interest than he
earns on a publicly traded security. Because of the additional risk of not obtaining a
credit rating, a private placement buyer may not buy a bond unless the bond is secured
by specific collateral. A private placement stock investor may demand a higher
percentage of ownership in the business or a fixeddividend payment per share of stock.

public issue
Definition
Issue of stock on a public market rather than being privately funded by the companies own
promoter(s), which may not be enough capital for the business to start up, produce, or continue
running. By issuingstock publically, this allows the public to own a part of the company, though not be
a controlling factor.

Use public issue in a sentence

You need to make sure that you know what a good public issuewould be and try to get in early
on.

It was a public issue and we all thought it was best for us to just avoid what we did and how
we did it.

l The public issue of Google was indeed a big event, because many investors turned out for one of

the largest IPOs in history.