Unit 3

Q1) Companies Act, 2013:

Memorandum of association (herein referred to as MOA) and Article of Association
Classification of companies:
Q2) Features of Companies Act, 2013
Amendments in 2020 of Companies Act: Companies (Amendment) Act, 2020:
Q3) Rights of Directors in a Company
Duties of Directors in a Company
Q4) Memorandum of Association (MoA):
Articles of Association (AoA):
Q5)Prospectus

Q1) Companies Act, 2013:

According to the definition of a company by the Indian Act 2013, ‘‘A registered association which
is an artificial legal person, having an independent legal, entity with perpetual succession, a
common seal for its signatures, a common capital comprised of transferable shares and
carrying limited liability.’’

Applicability of the Companies Act, 2013

• Companies incorporated under this Act or under any previous company law.
• Insurance companies
• Banking companies
• Companies engaged in the generation or supply of electricity
• Any other company governed by any special Act for the time being in force and Such
body corporates which are incorporated by any Act for time being in force, and as the
Central Government may by notification specify in this behalf.
Formation of a Company:
Section 3 of the Companies Act, 2013, details the basic requirements of forming a company as
follows:
• Formation of a public company involves 7 or more people who subscribe their names to
the memorandum and register the company for any lawful purpose.
• Similarly, 2 or more people can form a private company.
• One person can form a One-person company
Incorporation/Registration:
As per section 7 of companies Act,2013, the incorporation of the company shall be filed with
the Registrar within whose jurisdiction the registered office of the company is to be situated.
Required documents are as follows.
a) Memorandum of association (herein referred to as MOA) and Article of Association
(herein referred to as AOA) which is to be signed by all the subscribers to the memorandum in
the prescribed form.
b) A declaration is to be made in the prescribed manner by an advocate, a chartered
accountant, cost accountant or company secretary who is a part of formation of the company
and also by a person named in the article as director, manager or secretary of the company that
all the requirements of the act and rules for registration of an association are fulfilled.
c) An affidavit of each of the subscribers to the memorandum and person named as first
directors in the article declaring that they have not indulged in any criminal activity during
promotion, formation or management of the company neither be found guilty of any fraud or
misrepresentation or any breach of duty of any company under present company law or any
previous 5-year company law.
d) The affidavit must also state that all the documents given to the Registrar for registration of
the company are true to his knowledge that contains all the correct information. If any of such
information found wrong, the person shall be liable for action under section 447 of the Act.
e) Correspondence address of company till its registration must be established.
f) All the particulars (name, address, surname, nationality, etc.) of each subscriber to the
MOA and person mention as first directors in the AOA of the company along with identity proof
and for directors Director Identification Number must be prescribed in case any subscriber is a
company then such details should be prescribed.
g) Particulars relating to the interest of the first directors of the company in other firms or
body corporate along with their consent to as a director must also be provided.
Issuing the Certificate of Incorporation: Once the Registrar receives the information and
company registration papers, he registers all information and documents and issues a
Certificate of Incorporation in the prescribed form.
Corporate Identity Number (CIN): The Registrar also allocates a Corporate Identity Number
(CIN) to the company which is a distinct identity for the company. The allotment of CIN is on and
from the company’s incorporation date. The certificate carries this date.
Maintaining copies of Company registration papers: The company must maintain copies of
all information and documents until dissolution.

Classification of companies:
a) On the basis of incorporation
• Statutory Companies
Companies’ incorporation under a special act of parliament or state legislature not under any of
the companies act and provisions of the same do not apply to such companies. Example are-
RBI, SBI, Employees State Insurance Corporation etc.
• Registered Companies
Companies which are incorporated under section 7 of the companies act 2013 or any other
previous companies’ law. For example- Tata, Reliance, Infosys etc.
b) On the basis of the number of members
One person company
Section 2(62) of companies act 2013 defines one person company as a company that is to be
incorporated with one person as a member. Whereas section-3 companies act specifies certain
exceptions that are to be followed for making registration of a one-person company. For
example- AVV AD Avenue (OPC) Pvt. Ltd. company, etc.

Private companies
According to section 2(68), a private company except in the case of one person company limits
the number of its members to two hundred, minimum paid-up capital is as may be prescribed.
Such companies prevent any public invitation to subscribe to any of its securities.

Public companies
Public companies defined under section 2(71), as not a private company, whose shares are
exchanged in an open trade market. It issues its shares via an initial public offering and the
same can be bought by the general public. A minimum number of members required to form a
public company is at least seven and may extend too unlimited. There is no restriction on the
transferability of its shares.
c) On the basis of control
•Holding companies
Section 2(46) of the Act states that when one company is having control over the composition of
the board and the company holds the majority of shares in the other company is known as
holding the company of that other company.
•Subsidiary companies
Company in which the other company has significant influence but the company is not a
subsidiary of the company having such influence (control of at least 20% of total share capital)
is called an associate company according to Section 2(6). These types of companies include
joint venture company.
•Associate companies
Company in which the other company has significant influence but the company is not a
subsidiary of the company having such influence (control of at least 20% of total share capital)
is called an associate company according to Section 2(6). These types of companies include
joint venture company.
d) On the basis of Liability
• Limited companies
• Limited by share: Liability of members is limited to the number of shares bought by
them in a company limited by share. A company having the liability of its members
limited by the memorandum to the amount, if any, due on shares held by them
respectively is called company limited by shares according to section 2(22)
• Limited by guarantee: Limited by guarantee is one whose members liability is limited
by the memorandum. This liability will be limited to such amount as members
respectively undertake to contribute to the assets of the company in the process of
its winding up. Liability of the members is limited to the fixed sum specified in the
memorandum agreed by the members to contribute
•Unlimited companies
• Limited liability is a desirable option by the members but is not a necessary adjunct
to incorporation. According to section 2(92) of the Act, any company not having limit
on the liability of its members is termed as an unlimited company. These types of
companies are rarely formed now. AOA is must for such companies stating the
number of members with which the company is registered and amount of capital
share if it has. Liability of the member is like partners of a firm for all trade debt
without any limit.
e) On the basis of the manner of access to capital:
•Listed company: According to section 2(56), any company whose securities are listed
on any recognised stock exchange for public trading is termed as a listed company.it is
also known as a quoted company.
•Unlisted company: These companies are privately owned companies as they are not
listed on any stock exchange. Hence, they do not find any opportunity to raise funds.

Winding up of Companies: The term "winding up", as outlined in Section 2(94A) of the
Companies Act, 2013, refers to the formal process of closing a company through the
mechanisms provided by the Companies Act or by undergoing liquidation under the Insolvency
and Bankruptcy Code, 2016. This process involves ceasing regular business activities,
liquidating assets, and settling debts ultimately leading to the company's dissolution. Despite
this, during the winding-up phase and until dissolution, the company maintains its legal entity
status, allowing it to partake in legal actions within a Tribunal. The objective of winding up is to
ensure an orderly closure and distribution of the company's assets.
Modes of Winding up of Companies: Under Section 293 of the Companies Act 2017, the
winding up of a company can be conducted in one of three primary ways:
Compulsory Winding Up - By the Court: A court order initiates this mode. It usually occurs
when the company cannot pay its debts, breaches legal requirements, or when it is just and
equitable to wind up. The court appoints an official liquidator to manage the process, which
includes selling assets, paying creditors, and distributing any surplus among the shareholders.

Voluntary Winding Up: This occurs when the members or creditors of the company decide to
wind up the company's affairs. It can be initiated by a resolution of the members (shareholders)
if the company is solvent and can pay its debts or by the creditors if it is insolvent. The company
appoints a liquidator to conduct the winding-up process without court intervention.

Subject to the Supervision of the Court: In this mode, the winding-up process starts
voluntarily, but the court oversees the process. The court may decide to intervene and supervise
the winding-up process to protect the interests of various stakeholders, ensuring that the
process is conducted fairly and transparently.

Q2) Features of Companies Act, 2013

a) Class action suits for Shareholders: The Companies Act 2013 has introduced new concept
of class action suits with a view of making shareholders and other stakeholders, more informed
and knowledgeable about their rights.
b) More power for Shareholders: The Companies Act 2013 provides for approvals from
shareholders on various significant transactions.
c) Women empowerment in the corporate sector: The Companies Act 2013 stipulates
appointment of at least one-woman Director on the Board (for certain class of companies).
d) Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of
Companies to spend a certain amount of money every year on activities/initiatives reflecting
Corporate Social Responsibility.
e) National Company Law Tribunal: The Companies Act 2013 introduced National Company
Law Tribunal and the National Company Law Appellate Tribunal to replace the Company Law
Board and Board for Industrial and Financial Reconstruction. They would relieve the Courts of
their burden while simultaneously providing specialized justice.
f) Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified procedure
for mergers and amalgamations of certain class of companies such as holding and subsidiary,
and small companies after obtaining approval of the Indian government.
g) Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both ways; a
foreign company merging with an India Company and vice versa but with prior permission of
RBI.
h) Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits
directors and key managerial personnel from purchasing call and put options of shares of the
company, if such person is reasonably expected to have access to price-sensitive information.
i) Increase in number of Shareholders: The Companies Act 2013 increased the number of
maximum shareholders in a private company from 50 to 200.
j) Limit on Maximum Partners: The maximum number of persons/partners in any
association/partnership may be upto such number as may be prescribed but not exceeding one
hundred. This restriction will not apply to an association or partnership, constituted by
professionals like lawyer, chartered accountants, company secretaries, etc. who are governed
by their special laws. Under the Companies Act 1956, there was a limit of maximum 20
persons/partners and there was no exemption granted to the professionals.
k) One Person Company: The Companies Act 2013 provides new form of private company, i.e.,
one person company. It may have only one director and one shareholder. The Companies Act
1956 requires minimum two shareholders and two directors in case of a private company.
l) Entrenchment in Articles of Association: The Companies Act 2013 provides for
entrenchment (apply extra legal safeguards) of articles of association have been introduced.
m) Electronic Mode: The Companies Act 2013 proposed E-Governance for various company
processes like maintenance and inspection of documents in electronic form, option of keeping
of books of accounts in electronic form, financial statements to be placed on company’s
website, etc.
n) Indian Resident as Director: Every company shall have at least one director who has stayed
in India for a total period of not less than 182 days in the previous calendar year.
o) Independent Directors: The Companies Act 2013 provides that all listed companies should
have at least one-third of the Board as independent directors. Such other class or classes of
public companies as may be prescribed by the Central Government shall also be required to
appoint independent directors. No independent director shall hold office for more than two
consecutive terms of five years.
p) Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’
notice to call a board meeting. The notice may be sent by electronic means to every director at
his address registered with the company.
q) Duties of Director defined: Under the Companies Act 1956, a director had fiduciary (legal or
ethical relationship of trust) duties towards a company. However, the Companies Act 2013 has
defined the duties of a director.
r) Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian
company from indemnifying (compensate for harm or loss) its directors and officers like the
Companies Act 1956.
s) Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit
firms in case of publicly traded companies.
t) Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013 prohibits
Auditors from performing non-audit services to the company where they are auditor to ensure
independence and accountability of auditor.
u) Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of
the companies in financial crisis has been made time bound under Companies Act 2013.

Amendments in 2020 of Companies Act: Companies (Amendment) Act, 2020:

The President of India signed the Companies (Amendment) Act, 2020 on September 28,
2020. The revisions proposed by the Company Law Committee (CLC) in its report are
incorporated into the 2020 Amendment Act respectively
The key changes brought by the Amendment Act are highlighted below:
• Decriminalization of minor offenses: The Amendment modified and eliminated the fines or
penalties for some offenses. It also eliminates imprisonment as a result of violating certain
sections of the Act for certain IT under the Act.
• Definition of Listed Companies: In consultation with SEBI, the definition of Listed Firms
under section 2(52) has been changed to exclude certain companies from issuing specific
classes of securities. According to the definition, such companies would not be deemed Listed
Companies.
• Rights Issue: The Amendment has decreased the time frame for sending an offer letter to an
existing shareholder under the Rights Issue process to less than 15 days, or any shorter number
of days prescribed. Previously, the time frame ranged from 15 to 30 days ac per section 62 of the
Act.
• Declaration in respect of Beneficial Interest: The Act has been amended to include a few
prerequisites for Significant Beneficial Owners (SBO), such as the submission of declarations
with respect to beneficial interest in the company’s shares and the filing of reports with the
registrar intimating such beneficial interest.
• Periodical Financial Results: A new section 129A has been added to empower the
government to specify by rules which class or classes of firms must prepare their financial
results on a periodic basis, as stipulated.
• Corporate Social Responsibility: The Act has been revised to specify that if the corporation
spends more than the 2% statutorily mandated Corporate Social Responsibility contribution in
any fiscal year, then such company can adjust the amount of Corporate Social Responsibility
spend in the subsequent years to set-off the excess amount spent. The Amendment further
states that where the sum is less than 50 lakhs, the CSR Committee is not required.
• Constitution of NCLAT benches: The Act includes (Section 418 A) the goal of establishing
new benches of the National Company Law Appellate Tribunal (NCLAT) that will normally sit in
New Delhi. The NCLAT benches will be made up of at least one Judicial Member and one
Technical Member.
• Producer Companies: The Act has provided for the introduction of producer companies
under Chapter XXIA. Producer companies are those that which are engaged in business
activities such as production, handling, procurement, marketing, selling, import/export or other
such activities as provided for under Section 581B of the Companies Act, 1956.
• Exemption to NBFCs: A banking company is exempt from submitting resolutions passed to
grant loans, give guarantees, or provide security in respect of loans in the ordinary course of
business with the registrar under the Act. The Amendment broadens this exemption to include
registered non-banking finance companies and home finance companies.
• Foreign listing: Certain types of Indian public corporations are eligible to offer securities for
listing on stock exchanges in acceptable foreign jurisdictions as per the new section 23 of the
Act. The Central Government has the authority to exempt such classes of public businesses
from certain Act restrictions.

Q3) Rights of Directors in a Company

a) Right to form an Audit Committee
Section 177 gives the board of directors the authority to form an audit committee. It must have
at least three directors, one of whom must be an independent director. Independent directors
must comprise the majority of the committee. The audit committee's chairperson and members
should be capable of reading and comprehending financial statements. The audit committee
must function in compliance with the written terms of reference adopted by the Board.
b) Right to form Nomination and Remuneration Committees
Section 178 allows the Board of Directors to form the Nomination and Remuneration
Committee and the Stakeholders Relationship Committee. Three or more non-executive
directors should make up the Nomination and Remuneration Committee, with one-half of them
to be independent directors.
c) Right to form Stakeholder Relationship Committee
The Stakeholders Relationship Committee may be formed by the Board of Directors if there are
more than 1,000 shareholders, debenture holders, or other security holders on the board of
directors. This committee is responsible for considering and resolving shareholder complaints.
d) Rights that can be exercised at a Board meeting

• Section 224(6) gives the board of directors the authority to select the company's first
auditor within 30 days of the company's incorporation
• Section 224(6) gives the Auditor the authority to fill a casual vacancy in his or her
office if the vacancy is not caused by resignation.
• Additional Directors can be appointed if the Articles allow [Section 260].
• Other rights granted by the articles include revocation of securities, payment of
interim dividends, preliminary expenditures, use of a foreign seal, capitalization of
earnings, and the issuance of bonus shares.
 • Individual directors who act without being empowered by the Board may be ratified
by the Board by passing an effective resolution of retrospective effect if the Board
deems it necessary
e) Right to contribute to charitable or other funds
The company's Board of Directors is authorized to donate to bona fide charitable and other
funds under section 181. When the total amount of contribution, in any event, exceeds 5% of
the company's average net profit for the immediately preceding financial years, the company
must first give approval in a general meeting.
f) Right of making a political contribution
• Companies may make a political donation under section 182 of the Companies Act
2013. An organization that makes a political donation should not be a government entity
or one that has been in operation for less than three years.
• In addition, the contribution total does not exceed 7.5 percent of the company's net
profit in the three previous financial years.
g) Right to contribute to the National Defence Fund:Under section 183 of the Companies Act
2013, the Board of Directors has the authority to make contributions to the National Defence
Fund or any other fund authorized by the Central Government for the purpose of national
defence. The donation sum may be whatever you think is appropriate. This cumulative amount
of contribution should be included in the profit and loss account for the financial year in effect.
h) Rights of Directors can also be categorized into individual rights and collective rights
I. Individual Rights - Individual privileges include the right to review books of accounts
(Section 209(4))
• The right to receive notices of board meetings (Section 285)
• The right to engage in proceedings and cast votes in favor or against proposals
(Section 300)
• The right to receive draught circular resolutions (Under Section 289), and the right to
inspect minutes of board meetings.
II. Collective Rights:
•Right to refuse to transfer shares: Under Section 111 of the Act, directors of private
and deemed public companies have the right to refuse to register a transfer of shares to
anyone they don't want to.
•Right to elect a chairman: The directors have the right to elect a chairman for board
meetings under Regulation 76(1).
•Right to appoint a Managing Director: The Board of Directors has the authority to
appoint the company's managing director/manager (as specified in the Act).

Duties of Directors in a Company:

The Duties of The Directors Are Stipulated as Follows in Section 166 Of The 2013 Act:
• A director must behave in compliance with the company's Articles of Association
• A director must act in the best interests of the company's stakeholders and
promote the company's objectives in good faith.
• A director must exercise impartial judgment in carrying out his responsibilities with
due consideration, ability, and diligence.
• A director should always be mindful of potential conflicts of interest and strive to
prevent them in the best interests of the company
• Before authorizing related party transactions, the Director must ensure that proper
deliberations have to be taken place and that the transactions are in the company's
best interests.
• To ensure that the company's vigilance system and users are not harmed as a result
of such use.
 • Confidentiality of confidential proprietary knowledge, business secrets, inventions,
and unpublished prices must be maintained and should not be revealed until the
board has authorized it or the legislation requires it
• A Company's Director cannot appoint his or her office, and any such assignment is invalid.
• If a company director violates the provisions of this section, he or she will be fined
not less than one lakh rupees but not more than five lakh rupees.
• The Companies Act of 2013 also assigns different roles to Independent Directors in order to ensure the
Board's independence and fairness. An Independent Director is a member of the Board of Directors
who does not hold any stock in the company and has no financial ties to it other than the fees it earns
for serving on the board. According to the Companies Act of 2013, Schedule IV
• Protecting and promoting the interests of all stakeholders, especially minorities
shareholders.
• In the event of a conflict of interest among the stakeholders, acting as a mediator.
• Assistance in delivering an independent and fair decision to the Board of Directors.
• Adequate attention is paid to transactions between related parties.
• Any unethical activity, code of ethics breach, or alleged fraud in the company
should be reported honestly and impartially.

Liabilities of Directors in a Company:

Director can be held responsible on behalf of the Company in the following situations:

• Directors who fail to make the necessary disclosures under the SEBI (Acquisition of
Shares & Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading)
Regulations, 1992 can face legal action from SEBI.
• Refunding of share application or excess in share application fee.
• To pay for qualification shares.
• Civil Liability for Prospectus Misrepresentation.
• Tax Liability: Unless a director or a Former Director can show that the non-recovery or
non-payment of taxes is due to gross negligence or violation of duty, any present or past
Director (during the defaulter's time period) will be liable to pay the tax deficit as well as
any penalties.
Criminal Liabilities: The Following Are Some Criminal Liabilities Associated with A
Director's Actions:
• Bounced or dishonoured checks: Under the Negotiable Instruments Act of 1881, a
director’s signature on a dishonoured check may result in criminal charges, in addition
to the company's income tax violations under the 1961 Income Tax Act. Also, under the
Employees Provident Funds and Miscellaneous Provisions Act, 1952, and the Factories
Act, 1948.
• Derivative action is characterized as an action taken by one or more shareholders of a
corporation in which the company is the plaintiff and relief is sought on its behalf. It
must, however, be presented in a representative manner.
• A shareholder can bring an action against the company and its directors for matters that
are in violation of the company's Memorandum or Articles and that no majority
shareholder can sanction.
• Directors and the corporation could be held liable if the majority of shareholders engage
in "fraud on the minority," or discriminatory conduct. As a result, this is an extremely
valuable clause for Directors to be aware of and strive to take advantage of as much as
possible.
• The Companies Act requires a corporation to purchase insurance to cover itself against
losses caused by its directors. A director may also purchase insurance to compensate
for losses incurred due to liability to the company, with the premium charged by the
company.
Q4) Memorandum of Association (MoA):

Memorandum of Association is a legal document which describes the purpose for which the
company is formed.

• It defines the powers of the company and the conditions under which it operates.
• It is a document that contains all the rules and regulations that govern a company’s
relations with the outside world.
• It is mandatory for every company to have a Memorandum of Association which defines
the scope of its operations. Once prepared, the company cannot operate beyond the
scope of the document.
• If the company goes beyond the scope, then the action will be considered ultra vires and
hence will be void.
Section 4(5) of the Companies Act states that a memorandum should be in any form as given in
Tables A, B, C, D, and E of Schedule 1. The Tables are of different kinds because of different
kinds of companies.

• Table A – It is applicable to a company limited by shares.

• Table B – It is applicable to a company limited by guarantee and not having a share
capital.
• Table C – It is applicable to a company limited by guarantee and having a share capital.
• Table D – It is applicable to an unlimited company not having a share capital.
• Table E – It is applicable to an unlimited company having a share capital.
1. Name Clause
2. Registered Office Clause
3. Object Clause
4. Liability Clause
5. Capital Clause
6. Subscription Clause
7. Association Clause

Articles of Association (AoA):

The Articles of Association of a company are that which prescribe the rules,
regulations and the bye-laws for the internal management of the company, the conduct of its
business, and is a document of paramount significance in the life of a company.

The Articles of a company have often been compared to a rule book of the
company’s working, that regulates the management and powers of the company and its
officers.

It prescribes several details of the company’s inner workings such as the manner
of making calls, director’s/employees’ qualifications, powers and duties of auditors, forfeiture of
shares etc.

Nature and Content of Articles of Association (AoA):

Share capital including sub-division, rights of various shareholders, the relationship of these
rights, share certificates, payment of commission.
Lien of shares: To retain or hold the possession of shares in case the member is unable to pay
his debt to the company
Calls on shares: Calls on shares includes the whole or part unpaid on each share which has to
be paid by the shareholders on the demand of the company.
Transfer of shares: The AOA include the process for the transfer of shares by the shareholder to
other person (transferee).
Transmission of shares: Transmission includes title devolution by succession, death, marriage,
insolvency, etc.
Forfeiture of shares: The AOA provides for the forfeiture of shares if the purchase requirements
such as paying call money are not met with.
Surrender of shares: Surrender of shares is when the shareholders voluntary gives back or
return the shares they own to the company.
Conversion of shares in stock: In consonance with the Articles of association, the company
can convert the shares into stock by an ordinary resolution in a general meeting.
Share warrant: A share warrant is a bearer document relating to the title of shares and cannot
be issued by private companies; only public limited companies can issue a share warrant.
Alteration of capital: Increase, decrease or rearrangement of capital must be done as the
Articles of association provide.
General meetings and proceedings: All the provisions relating to the general meetings and the
manner in which they are to be conducted are to be contained in the Articles of association.
Voting rights of members, voting by poll, proxies: The members right to vote on certain
company matters and the manner in which voting can be done is provided in the Articles of
association.
Directors, their appointment, remuneration, qualifications, powers and proceedings of the
boards of directors’ meetings.
Dividends and reserves: The Articles of association of a company also provide for the
distribution of dividend to the shareholders.
Accounts and Audits: The auditing of a company shall be done subject to the provisions of the
Articles of association of the company.
Borrowing Powers: Every company has powers to borrow. However; this must be done
according to the Articles of association of the company.
Winding Up: Provisions relating to the winding up of the company finds mention in Articles of
association of the company and must be done accordingly.

Forms of Articles of Association (MoA):

Schedule I of the articles of association companies act, 2013 provides forms for Articles
of Association (AOA) in tables F, G, H, I and J for different types of companies. Further, AOA must
be in the respective form.
Table F - Articles of Association under companies act 2013 of a company limited by shares
Table G - Articles of Association of a company limited by guarantee and having share capital
Table H - Articles of Association of a company limited by guarantee and not having share capital
Table I - Articles of Association of an unlimited company and having share capital
Table J - Articles of Association of an unlimited company and not having share capital
Q5)Prospectus

The Companies Act, 2013 defines a prospectus under section 2(70). Prospectus can be defined
as “any document which is described or issued as a prospectus”. This also includes any notice,
circular, advertisement or any other document acting as an invitation to offers from the public.
Such an invitation to offer should be for the purchase of any securities of a corporate body. Shelf
prospectus and red herring prospectus are also considered as a prospectus.

Essentials for a document to be called as a prospectus:

The Companies Act, 2013 defines a prospectus under section 2(70). Prospectus can be defined
as “any document which is described or issued as a prospectus”. This also includes any notice,
circular, advertisement or any other document acting as an invitation to offers from the public.
Such an invitation to offer should be for the purchase of any securities of a corporate body. Shelf
prospectus and red herring prospectus are also considered as a prospectus

Essentials for a document to be called as a prospectus

For any document to considered as a prospectus, it should satisfy the following conditions.

• The document should invite the subscription to public share or debentures, or it should
invite deposits.
• Such an invitation should be made to the public.
• The invitation should be made by the company or on the behalf company.
• The invitation should relate to shares, debentures or such other instruments.
Advertisement of Prospectus
Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of
the prospectus.

This section states that when in any manner the advertisement of a prospectus is
published, it is mandatory to specify the contents of the memorandum of the company
regarding the object, member’s liabilities, amount of the company’s share capital, signatories
and the number of shares subscribed by them and the capital structure of the company.

Types of Prospectuses:
Red Herring Prospectus: Red herring prospectus is the prospectus which lacks the complete
particulars about the quantum of the price of the securities. A company may issue a red herring
prospectus prior to the issue of prospectus when it is proposing to make an offer of securities.
This type of prospectus needs to be filed with the registrar at least three days prior to the
opening of the subscription list or the offer.
Shelf Prospectus: Shelf prospectus can be defined as a prospectus that has been issued by
any public financial institution, company or bank for one or more issues of securities or class of
securities as mentioned in the prospectus. When a shelf prospectus is issued then the issuer
does not need to issue a separate prospectus for each offering, he can offer or sell securities
without issuing any further prospectus.
Abridged prospectus: The abridged prospectus is a summary of a prospectus filed before the
registrar. It contains all the features of a prospectus. An abridged prospectus contains all the
information of the prospectus in brief so that it should be convenient and quick for an investor
to know all the useful information in short.
Deemed Prospectus: A deemed prospectus has been stated under section 25(1) of the
Companies Act, 2013. When any company to offer securities for sale to the public, allots or
agrees to allot securities, the document will be considered as a deemed prospectus through
which the offer is made to the public for sale. The document is deemed to be a prospectus of a
company for all purposes and all the provision of content, and liabilities of a prospectus will be
applied upon it.