A Guide to Companies (Prospectus and Allotment of Securities) Rules, 2014

A Guide to Companies (Prospectus and Allotment of Securities) Rules, 2014

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The Companies (Prospectus and Allotment of Securities) Rules, 2014 provides procedures, rules, and regulations for prospectus and allotment of securities. 

Brief History of the Rules

The Companies (Prospectus and Allotment of Securities) Rules, 2014 has been enacted by the Central Government by the powers given under Sections 26, 27, 28, 29, 31, 39, 40 and 42 read with Section 469 of the Companies Act, 2013.

List of Amendments
Companies (Prospectus and Allotment of Securities) Amendment Rules, 2014

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Companies (Prospectus and Allotment of Securities) Rules, 2014

1. Important Definitions

Act means the Companies Act, 2013.

Fees means fees as specified in the Companies (Registration Offices and Fees) Rules, 2014.

Regional Director means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director.

Section means a section of the Companies Act, 2013. 


2. Procedures

2.1 Information to be Stated in the Prospectus

  1. The names, addresses and contact details of the corporate office of the issuer company, compliance officer of the issuer company, merchant bankers and co-managers to the issue, registrar to the issue, bankers to the issue, stock brokers to the issue, credit rating agency for the issue, arrangers, if any, of the instrument, names and addresses of such other persons as may be specified by the Securities and Exchange Board (SEBI) in its regulations
  2. The dates relating to opening and closing of the issue
  3. A declaration which has to be made by the Board or the Committee authorised by the Board in the prospectus that the allotment letters will be issued or application money will be refunded within 15 days from the closure of the issue or such lesser time as may be specified by SEBI or else the application money will have to be refunded to the applicants forthwith, failing which interest will have to be due to be paid to the applicants at the rate of 15% per annum for the delayed period
  4. A statement given by the Board that all monies received out of the issue will be transferred to a separate bank account maintained with a Scheduled Bank
  5. The details of all utilized and unutilised monies out of the monies collected in the previous issue made by way of public offer will have to be disclosed and continued to be disclosed in the balance sheet till the time any part of the proceeds of such previous issue remains unutilized indicating the purpose for which such monies have been utilized, and the securities or other forms of financial assets in which such unutilized monies have been invested
  6. The names, addresses, telephone numbers, fax numbers and e-mail addresses of the underwriters and the amount underwritten by them
  7. The consent of trustees, solicitors or advocates, merchant bankers to the issue, registrar to the issue, lenders and experts
  8. The details of any litigation or legal action pending or taken by any Ministry or Department of the Government or a statutory authority against any promoter of the issuer company during the last five years immediately preceding the year of the issue of the prospectus and any direction issued by such Ministry or Department or statutory authority upon conclusion of such litigation or legal action has to be disclosed
  9. The details of pending litigation involving the issuer, promoter, director, subsidiaries, group companies or any other person, whose outcome could have material adverse effect on the position of the issuer
  10. The details of pending proceedings initiated against the issuer company for economic offences
  11. The details of default and non-payment of statutory dues.

2.2 Details of Capital Structure of the Company to be Provided

  1. Details of the authorised, issued, subscribed and paid up capital (number of securities, description and aggregate nominal value)
  2. Details of the size of the present issue 
  3. Details of the paid up capital after the issue and after conversion of convertible instruments (if applicable)
  4. Details of the share premium account (before and after the issue)
  5. Details of the existing share capital of the issuer company in a tabular form, indicating therein with regard to each allotment, the date of allotment, the number of shares allotted, the face value of the shares allotted, the price and the form of consideration (Provided that in the case of an initial public offer of an existing company, the details regarding individual allotment has to be given from the date of incorporation of the issuer and in the case of a listed issuer company, the details has to be given for 5 years immediately preceding the date of filing of the prospectus and the issuer company also has to disclose the number and price at which each of the allotments were made in the last 2 years preceding the date of the prospectus separately indicating the allotments made for considerations other than cash and the details of the consideration in each case).

2.3 Details of Directors to be Disclosed

  1. The name, designation, Director Identification Number (DIN), age, address, period of directorship, details of other directorships
  2. The remuneration payable or paid to the director by the issuer company, its subsidiary and associate company
  3. Shareholding of the director in the company including any stock options, shareholding in subsidiaries and associate companies
  4. Appointment of any relatives to an office or place of profit
  5. The full particulars of the nature and extent of interest, if any, of every director in the promotion of the issuer company or in any immovable property acquired by the issuer company in the two years preceding the date of the Prospectus or any immovable property proposed to be acquired by it
  6. Where the interest of such a director consists in being a member of a firm or company, the nature and extent of his interest in the firm or company, with a statement of all sums paid or agreed to be paid to him or to the firm or company in cash or shares or otherwise by any person either to induce him to become, or to help him qualify as a director, or otherwise for services rendered by him or by the firm or company, in connection with the promotion or formation of the issuer company.

2.4 Source of Promoter’s Contribution to be Disclosed

  1. The total shareholding of the promoters, clearly stating the name of the promoter, nature of issue, date of allotment, number of shares, face value, issue price or consideration, source of funds contributed, date when the shares were made fully paid up, percentage of the total pre and post issue capital
  2. The proceeds out of the sale of shares of the company and shares of its subsidiary companies previously held by each of the promoters
  3. The disclosure for sources of promoters contribution has to also include the complete details of particulars of name, address and the amount so raised as loan, financial assistance etc., if any, by promoters for making such contributions and in case of own sources.

2.5 Reports to be Disclosed in the Prospectus

  1. The reports by the auditors with respect to profits, losses, assets and liabilities. The report has to also include the amounts or rates of dividends, if any, paid by the issuer company in respect of each class of shares for each of the 5 financial years immediately preceding the year of issue of the prospectus, giving particulars of each class of shares on which such dividends have been paid and particulars of the cases in which no dividends have been paid in respect of any class of shares for any of those years (Provided that if no accounts have been made up in respect of any part of the period of 5 years ending on a date 3 months before the issue of the prospectus, a statement of that fact accompanied by a statement of the accounts of the issuer company in respect of that part of the said period up to a date not earlier than 6 months of the date of issue of the prospectus indicating the profit or loss for that period and assets and liabilities position as at the end of that period together with a certificate from the auditors that such accounts have been examined and found correct and the said statement may indicate the nature of provision or adjustments made or which are yet to be made).
  2. The reports relating to profits and losses for each of the 5 financial years or where 5 financial years have not expired, for each of the financial year immediately preceding the issue of the prospectus has to deal with the profits or losses of the company for each of the 5 financial years immediately preceding the year of the issue of prospectus if the companies has no subsidiaries, deal separately with the issuer company’s profits or losses if the company has subsidiaries.

2.6 Other Matters and Reports to be Stated in the Prospectus

  1. Details of proceeds or any part of proceeds of the issue of shares or debentures in the purchase of any business, in the purchase of an interest in any business and by reason of that purchase. 
  2. A report made by a chartered accountant (who shall be named in the prospectus) on the profits or losses of the business for each of the 5 financial years immediately preceding the date of the issue of the prospectus and the assets and liabilities of the business as on the last date to which the accounts of the business were made up, being a date not more than 120 days before the date of the issue of the prospectus.
  3. Details of purchase or acquisition of any immovable property including indirect acquisition of immovable property for which advances have been paid to even third parties.
  4. Disclosures regarding the names, addresses, descriptions and occupations of the vendors, the amount paid or payable in cash, to the vendor and, where there is more than one vendor, or the company is a sub-purchaser, the amount so paid or payable to each vendor, specifying separately the amount, if any, paid or payable for goodwill, the nature of the title or interest in such property proposed to be acquired by the company and the particulars of every transaction relating to the property, completed within the 2 preceding years, in which any vendor of the property or any person who is, or was at the time of the transaction, a promoter, or a director or proposed director of the company had any interest, direct or indirect, specifying the date of the transaction and the name of such promoter, director or proposed director and stating the amount payable by or to such vendor, promoter, director or proposed director in respect of the transaction.
  5. Details of the proceeds, or any part of the proceeds, of the issue of the shares or debentures that have or have to be applied directly or indirectly and in any manner resulting in the acquisition by the company of shares in any other body corporate
  6. A report of the chartered accountant containing the details of the profits or losses of the other body corporate for each of the 5 financial years immediately preceding the issue of the prospectus and the assets and liabilities of the other body corporate as on the last date to which its accounts were made up.
  7. Details of matters relating to terms and conditions of the term loans including re-scheduling, prepayment, penalty, default.
  8. Details of the aggregate number of securities of the issuer company and its subsidiary companies purchased or sold by the promoter group and by the directors of the company which is a promoter of the issuer company and by the directors of the issuer company and their relatives within 6 months immediately preceding the date of filing the prospectus with the Registrar of Companies.
  9. Details of matters relating to material contracts and time and place at which the contracts together with documents will be available for inspection from the date of prospectus until the date of closing of subscription list.
  10. Details of related party transactions entered during the last 5 financial years immediately preceding the issue of prospectus which provide details of all transactions with related parties with respect to giving of loans or, guarantees, providing securities in connection with loans made, or investments made and all other transactions which are material to the issuer company or the related party, or any transactions that are unusual in their nature or conditions, involving goods, services, or tangible or intangible assets, to which the issuer company or any of its parent companies was a party.
  11. Summary of reservations or qualifications or adverse remarks of auditors in the last 5 financial years immediately preceding the year of issue of prospectus and of their impact on the financial statements and financial position of the company and the corrective steps taken and proposed to be taken by the company for each of the said reservations or qualifications or adverse remarks.
  12. Details of any inquiry, inspections or investigations initiated or conducted under the Companies Act or any previous companies law in the last 5 years immediately preceding the year of issue of prospectus in the case of company and all of its subsidiaries and if there were any prosecutions filed (pending or not pending) fines imposed or compounding of offences done in the last 5 years immediately preceding the year of the prospectus for the company and all of its subsidiaries.
  13. Details of acts of material frauds committed against the company in the last 5 years, if any, and if so, the action taken by the company.
  14. A fact sheet containing details of the type of offer document (Red Herring Prospectus or Shelf Prospectus or Prospectus), the name of the issuer company, date and place of its incorporation, its logo, address of its registered office, its telephone number, fax number, details of contact person, website address, e-mail address, the names of the promoters of the issuer company, the nature, number, price and amount of securities offered and issue size, as may be applicable, the aggregate amount proposed to be raised through all the stages of offers of specified securities made through the shelf prospectus, the name, logo and address of the registrar to the issue, along with its telephone number, fax number, website address and email address and the issue schedule containing the date of opening of the issue, date of closing of the issue, applicable date of earliest closing of the issue, applicable credit rating, all the grades obtained for the initial public offer, the names of the recognised stock exchanges where the securities are proposed to be listed, the details about eligible investors, coupon rate, coupon payment frequency, redemption date, redemption amount and details of debenture trustee in case of debt securities.

2.7 Variation in the Terms of Contract Referred to in Prospectus

Where the company has raised money from public through prospectus and has any unutilized amount out of the money so raised, it cannot vary the terms of contracts referred to in the prospectus or objects for which the prospectus was issued unless it passes a special resolution through postal ballot and the notice of the proposed special resolution has to contain the following particulars- 

  1. The original purpose or object of the issue
  2. The total money raised
  3. The money utilised for the objects of the company stated in the prospectus
  4. The extent of achievement of proposed objects
  5. The unutilised amount out of the money so raised through prospectus
  6. Particulars of the proposed variation in the terms of contracts referred to in the prospectus or objects for which prospectus was issued
  7. The reason and justification for seeking variation
  8. The proposed time limit within which the proposed varied objects would be achieved
  9. The risk factors pertaining to the new objects
  10. Other relevant information which is necessary for the members to take an informed decision on the proposed resolution.

2.8 Conditions for Payment of Commission

  1. The payment of such commission has to be authorized in the company’s articles of association.
  2. The commission may be paid out of proceeds of the issue or the profit of the company or both.
  3. The rate of commission paid or agreed to be paid cannot exceed, in case of shares, 5% of the price at which the shares are issued or a rate authorised by the articles, whichever is less, and in case of debentures, it cannot exceed 2.5% of the price at which the debentures are issued, or as specified in the company’s articles, whichever is less.
  4. The prospectus of the company has to disclose the name of the underwriters, the rate and amount of the commission payable to the underwriter and the number of securities which is to be underwritten or subscribed by the underwriter absolutely or conditionally.
  5. No paid commission can exist to any underwriter for securities which are not offered to the public for subscription.
  6. A copy of the contract for the payment of commission has to be delivered to the Registrar at the time of delivery of the prospectus for registration.

2.9 Procedure for Private Placement

  1. A company may make an offer or invitation to subscribe to securities through issue of private placement offer letter in Form PAS-4.
  2. A private placement offer letter has to be accompanied by an application form serially numbered and addressed specifically to the person to whom the offer is made and has to be sent to him, either in writing or in electronic mode, within 30 days of recording the names of such persons (Provided that no person other than the person so addressed in the application form will be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid).
  3. A company cannot make private placement of its securities unless the proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the offers or invitations.
  4. An offer or invitation for private placement cannot be given to more than two hundred persons in the aggregate in a financial year.
  5. The value of an offer or invitation of private placement per person has to be with an investment size not less than INR 20,000 of face value of securities.
  6. The payment to be made for subscription to securities has to be made from the bank account of the person subscribing to such securities and the company has to keep the record of the bank account from where such payments for subscriptions have been received (Provided that monies payable on subscription to securities to be held by joint holders has to be paid from the bank account of the person whose name appears first in the application).
  7. The company has to maintain a complete record of private placement offers in Form PAS- 5 (Provided that a copy of such record along with the private placement offer letter in Form PAS-4 has to be filed with the Registrar with fee as provided in Companies (Registration Offices and Fees) Rules, 2014 and where the company is listed, with the Securities and Exchange Board of India within a period of 30 days of circulation of the private placement offer letter).
  8. A return of allotment of securities has to be filed with the Registrar within 30 days of allotment in Form PAS-3 and with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 along with a complete list of all security holders containing the full name, address, Permanent Account Number and email ID of such security holder, the class of security held, the date of allotment of security, the number of securities held, nominal value and amount paid on such securities and particulars of consideration received if the securities were issued for consideration other than cash.
  9. The applicability of few procedures under these rules are exempt for non- banking financial companies which are registered with the Reserve Bank of India under the Reserve Bank of India Act, 1934 and housing finance companies registered under the National Housing Bank Act, 1987.

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