PROPECTUS,

SHARE CAPITAL AND SHARES,

BUYBACK OF SHARES,
DEBENTURES
 COMPANY

PROSPECTUS
 DEFINITION
A document described or issued as
prospectus and includes any notice, circular,
advertisement or other document inviting deposits from
the public or inviting the offers from public for subscription
or purchase of shares or debentures of a company.
 MEANING
Company prospectus is released by company to inform
the public and investors of the various securities that are
available. These documents describe about mutual funds,
bonds, stocks and other forms of investments offered by the
company. A prospectus is generally accompanied by basic
performance and financial information about the company.
 LEGAL REQUIREMENTS OF
PROSPECTUS

A Prospectus is required to be issued only after the incorporation

of company.
The prospectus must contain all the particulars, listed in the
schedule II of Companies act.
The prospectus must be dated.
Before a prospectus is issued, a copy of it must be registered with
the registration of companies.
Prospectus shall be issued within ninety days of its registration .
CONTENTS OF A PROSPECTUS

GENERAL INFORMATION

It contains (i)Name and address of registered office of

company.
(ii)Name of stock exchange where application for
listing is made.
(iii)Date of opening of the issue.
(iv)Date of closing of the issue.
(v)Name and address of companies manager and
managing directors
 CAPITAL STRUCTURE OF COMPANY---
i. Authorized, issued, subscribed,
and paid-up capital. ii.Size of the present issue
giving separately reservation for preferential
allotments to promoters and others.

PARTICULARS OF THE ISSUE-

i.Objects. ii.Project cost. iii.Means of
financing.
 OUTSTANDING LITIGATION
Relating to financial matters or
criminal proceedings against the company or
directors under Schedule XIII.

CERTAIN PRESCRIBED PARTICULARS-

In regard to the company and other
listed companies under the same management,
which made any capital issue during the last 3
years.
FORMALITIES IN ISSUING COMPANY
PROSPECTUS
Every prospectus issued by or on
behalf of a company must be dated and that
date shall unless the contrary is proved, be
regarded as the date of its publication. (section
55)
A copy of the prospectus signed by
every director or proposed director or by his
agent must be delivered to the registrar on or
before the date of publication. The prospectus
issued to the public should mention that a copy
of the prospectus along with the specified
documents have been filed with the register.
Continued..

A prospectus must not be

issued more than 90 days after
the date on which a copy thereof
is delivered for registration. If a
prospectus is so issued it will be
deemed to be a prospectus a
copy of which has not been
delivered to the registrar.
STATEMENT IN LIEU OF A
PROSPECTUS
A public limited company,
1. which has not issued a prospectus.
2.which has issued a prospectus, but has not
proceeded to allot any of the shares,
offered to the public for subscription, is
required to deliver to Registrar a
statement in lieu of prospectus for
registration, at least three days before the
allotment of shares or debentures.
Continued........
.. Schedule III contains the details of the
particulars to be furnished. In case of private
company becoming a public company, statement
in lieu of the prospectus can be filed. Schedule IV
contains the details of the particulars to be
furnished for the same.

Such a statement is required to be

signed by every person, who is named therein as
a director or a proposed director, of the company,
or by his agent authorized in writing.
Continued

If allotment of shares or debentures is

made without filing the statements in lieu of
prospectus, the allottee may avoid it within two
months after the statutory meeting, or where no
such meeting is to be held, within two months of
the allotment. Contravention also renders the
company and every director liable to fine up to
rupees 10,000.
Share and
Share
Capital
 What are SHARES?
Definitions:

Sec 2(46) of THE COMPANIES ACT,1956:

A share is a share in the share capital of a Company,
and includes stock receipt where there is a distinction
between stock and shares is expresed or implied.
 Share capital
Meaning of Share Capital:
Denotes the amount of capital raised by the
issue of shares, by a company.
Collected through the issue of shares and
remains with the company till its liquidation.
Owned capital of the company
The shareholder are the owners of the
company.
The total share capital is divided into small
parts and each part is called a share.
Share is the smallest part of the total
capital of a company.
 Equity shares
Equity shares are those shares which are
ordinary in the course of company's
business.

They are also called as ordinary shares.

According to section 85 (2),

Equity share capital means, with
reference to any such company, all share
capital which is not preference share
capital.
 Advant Disadva
ages
INCOME. ntages
TRANSFEBILITY OF
SHARES.
OWNERSHIP.
EASILY LIQUIDATED.
UNCERTAINITY OF INCOME.

RISKY INVESTMENT.

HARMFUL SPECULATION.
 Preference shares
According to section 85 (1) Preference share
capital means, with reference to any company
limited by shares, whether formed before or after
the commencement of this Act, that part of the
share capital of the company which fulfils both the
following requirements, namely:
(a) that as respects dividends, it carries or will
carry a preferential right to be paid a fixed
amount or an amount calculated at a fixed rate,
which may be either free of or subject to income-
tax; and
(b) that as respects capital, it carries or will carry,
on a winding up or repayment of capital, a
preferential right to be repaid the amount of the
 Advantages
1. Raising long

2. No need to mortgage property

3. Repayment of capital.

4. Rate of return is guaranteed.

 Disadvantages

1. Permanent burden
2. Not advantageous to investors

3. Cost of raising the preference share

capital is higher.
 Types of preference shares
1. Cumulative preference shares:
Carry the right to fixed to a fixed amount
of dividend at a fixed rate. Dividend is
payable even out of future profit, if current
profit is not sufficient for this purpose.

2. Non-cumulative preference shares:

carry the right to a fixed amount of
dividend, in case no dividend is declared in
a year due to any reason, the right to
receive such dividend for that year expires.
3. Participating preference shares:
addition to right a fixed dividend, the
shareholders have the right to participate in
the surplus profits, after payment of equity
dividend at a stipulated rate.

4. Non-participating preference shares:

are the shares on which only a fixed rate
of dividend is paid every year, without any
additional rights in profits and surplus in
case of winding up of the company.
5. Redeemable preference shares:
under section 80, this shares are issued on
condition that company will repay after a fixed
period of time.

6. Non-redeemable preference shares:

not carry the agreement regarding
redemption of at a certain period. Section 80
(5A) provides irredeemable preference shares.

7. Convertible preference shares: which

converted into equity shares at their option.

8. Non-convertible preference shares:

which cannot converted into equity shares
at their option.
 Allotment of shares
GENERAL RULES REGARDING
ALLOTMENT:

1. Made by proper authority

2. Reasonable time

3. Unconditional

4. communicated
 Statutory restriction on
allotment
1. Minimum subscription

2. Statement in lieu of prospectors

3. Opening of subscription list

 Effects of irregular
allotment

1. Liable to be fined

2. Cancellation/ voidance of allotment

3. Void or lapsed allotment

BUY BACK OF SHARES
BUY BACK OF SHARES

Meaning:

Buyback of shares is processes where a company

seeks to repurchase its own securities from its
existing shareholders.

Buy back of equity shares is an important mode of

capital restructuring.
 PROVISIONS OF BUY BACK

Under Section 68 of Companys Act, 2013, read with Section

77A of Companies Act, 1956, any company limited by shares
or company limited by guarantee and having a share capital
can buy its own securities, whether it is a private company,
public company or unlisted Company.

BUY BACK OF SHARES

Private and Unlisted

Listed companies companies
Section 77A, 77AA, 77B of Section 77A, 77AA, 77B of
companies Act, 1956 companies Act, 1956
+ +
SEBI (Buy Back of Pvt. Ltd Company and
securities) Regulations unlisted public company
1998 (Buy back of securities)
Rules 1999, Issued by
Central Government.
OBJECTIVES OF BUY BACK

Improves EPS, Return on Capital, Return On

Networth

Enhance longterm Shareholder value

Additional exit route

To prevent or inhibit unwelcome takeover bids

To achieve optimum capital structure

 AUTHORITY AND QUANTUM OF BUY BACK
Buy back should be authorized by articles
QUANTUM OF BUY- BACK:

BOARD RESOLUTION SHARE HOLDERSRESOLUTION

Special Resolution
Not exceeding 10% of
the total paid-up equity -Listed Companies by Postal
Ballot
capital and free reserves
of the Company. -Unlisted Companies by
General Meeting

Resolution should be Not exceeding 25% of the total

passed at Meeting of paid-up capital and free
Board of Directors as per reserves of the Company
Section 292(1)(aa) of
Companies Act 1956.
Buy back of equity shares in any financial year should not exceed 25% of
the total paid-up equity capital of the company [ Proviso to Section 77A(2)
(c)].

For example:

The capital structure of a company consists of:

10,00,000 equity shares of Rs.10 each fully paid up

10,00,000 equity shares of Rs.10 each on which Rs.5 is paid up
Free Reserves Rs. 7,50,00,000

The total paid up equity share capital of the company is

Rs.1,50,00,000 [1,00,00,000 + 50,00,000]
Board can buy back upto 10% of total paid up equity share capital and free
reserves
and that is Rs.9,00,000 [ 10%(1,50,00,000+7,50,00,000)]
Shareholders can approve buy back upto 25% of paid up capital and free
reserves that
is Rs.2,25,00,000 [ 25%(1,50,00,000 + 7,50,00,000)]
Buy back should not exceed 25% of paid up equity capital that is
Rs.37,50,000 [ 25%( 1,00,00,000 + 50,00,000)]
DEBENTURES
DEBENTURES

A debenture is thus like a certificate of loan or a loan bond

evidencing the fact that the company is liable to pay a
specified amount with interest and although the money
raised by the debentures becomes a part of the company's
capital structure, it does not become share capital.
 Types of debentures

Non Convertible Debentures (NCD):

These instruments retain the debt character and
can not be converted into equity shares.
Partly Convertible Debentures (PCD):
A part of these instruments are converted into
Equity shares in the future at notice of the issuer. The
issuer decides the ratio for conversion. This is normally
decided at the time of subscription.
 Fully convertible Debentures (FCD):
These are fully convertible into Equity shares at the
issuer's notice. The ratio of conversion is decided by the issuer. Upon
conversion the investors enjoy the same status as ordinary
shareholders of the company.
Optionally Convertible Debentures (OCD):
The investor has the option to either convert these
debentures into shares at price decided by the issuer/agreed upon at
the time of issue.
On basis of Security, debentures are classified into:

Secured Debentures: These instruments are secured by a

charge on the fixed assets of the issuer company. So if the
issuer fails on payment of either the principal or interest
amount, his assets can be sold to repay the liability to the
investors.
Unsecured Debentures: These instrument are unsecured in the
sense that if the issuer defaults on payment of the interest or
principal amount, the investor has to be along with other
unsecured creditors of the company .