Section 30: Advertisement of Prospectus

This article briefly describes the meaning of prospectus which is basically a document inviting deposits from the public or a document-inviting offer from the public for the subscription of shares or debentures of the company. It also includes provision for allotment of securities and lay down methods and procedures used by companies to raise money.
Estimated Reading Time: 3 minutes

Introduction

Section 30 of Companies Act, 2013, part of chapter III discusses the basics with respect to advertisement of Prospectus. This section was notified by the ministry of corporate affairs on 12th September 2013 a few after the act, 2013 was enforced. A prospectus is basically a document inviting deposits from the public or a document-inviting offer from the public for the subscription of shares or debentures of the company[1]. This chapter is a very important part of companies act, 2013 and includes provision for allotment of securities and lay down methods and procedures used by companies to raise money.

Capital is essential for any company for their day to day business activities and raising money by way of prospectus through the public is one such method and section 30 of the act, 2013 lays down further conditions for the same. A prospectus is a very important document, it helps the investor understand the true nature of the company and so it is essential that it contain all the necessary information, so that an investor can make an informed decision.

Purpose of Section 30

This section, as in the bare act, is itself very brief and lays down the basic information that needs to be present in a prospectus which is advertised. The following has to be included in an advertisement of any prospectus of a company, published in any manner:

  • Contents of the memorandum of the company as regards to its object
  • Liability of members
  • Amount of share capital of company
  • Names of signatories of the memorandum, with the number of shares subscribed by them and,
  • Capital structure.

So, basically this section mandates that all the essential information, which forms the part of the memorandum and helps an outsider get a sense of the true nature and identity of a company has to be included in its prospectus.

Situation Before Enactment of Section 30

The act, 2013 has changed the situation quite a lot. Section 30 is a complete shift from its equivalent section under the Act of 1956. Section 66 in the old act of 1956 had a similar provision for advertisement of prospectus in newspapers. This section did not make it mandatory but gave discretion to companies to include or not these as necessary information during advertisement of prospectus in any newspaper. The section under the act, 2013 has widened the scope of this section to include publication of a prospectus in any manner and not just in newspapers and further mandated that certain necessary information have to be included in prospectus so as to safeguard the interest of investors.

Application of Section 30

This section basically lay down essentials that need to be present in a published prospectus of a company. Whenever a company raises money through the public, they must publish their prospectus, to make sure all the impending investors have all the necessary information to make the decision and so application of this section becomes very important at this time. This a requirement that every public company must comply with for a valid issuance of security and to make sure that the money raised by the company is not invalidated and they don’t have to return the same.

Cases at a Glance

The issue covering prospectus was discussed by the High Court of Kerala inKunnamkulam Paper Mills Ltd. v. The Securities and Exchange Board AIR 2009[2]. The Court dismissed the case due to lack of jurisdiction.

Concluding Summary

This section is very important as it lays down the necessities that need to be included in the prospectus that is advertised in any manner by a company. Through this section, it is now easier for investors to get all the necessary information and thus this section basically safeguards the interest of the investor.


[1] Companies Act, 2013, No. 18, Acts of Parliament, § 2(70) (2013).

[2] W.P. (C). No. 19192 of 2003 (I)

Also read, Bankruptcy of IL&FS: impacts, details, issues of fraudulent acts.

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