For the purposes of these requirements a person is considered to be a vendor who has entered into any contract, absolute or conditional, for the sale or purchase, or for any option of purchase, of any property to be acquired by the company. But this proposition must be qualified by limiting its application to cases the purchase-money is not fully paid at the date of publication of the prospectus ; or (b) the purchase-money is to be paid or satisfied wholly or in part out of the proceeds of the issue offered for subscription by the prospectus ; or (c) the contract depends for its validity or fulfilment on the result of such issue. If the property to be acquired by the company is to be taken on lease then the expression " vendor " includes the lessor, and the expression " purchase-money " includes the con sideration for the lease, and the expression "sub-purchaser" includes a sub-lessee.
The foregoing requirements do not apply to a circular or notice inviting existing members or debenture-holders of a company to subscribe for further shares or debentures. They do, however, apply generally to any prospectus, whether issued on or with reference to the formation of a company or subse quently. But in the case of a prospectus published more than one year after the date at which the company is entitled to commence business certain of these requirements do not apply. Such are those as to the memorandum of association, and the qualification, remuneration, and interest of directors, the names, descriptions, and addresses of directors and proposed directors, and the amount or estimated amount of preliminary expenses. There are other pro visions in the Act relating to prospectuses which have a great and far-reaching importance, particularly that which avoids the " waiver" clause. The Act ex pressly declares that a condition requiring or binding an applicant for shares or debentures to waive compliance with any of the foregoing requirements, or purporting to affect him with notice of any contract, document, or matter not specifically referred to in the prospectus, shall be void. Prior to the statutory meeting a company cannot vary the terms of a contract referred to in the prospectus, except subject to the approval of that meeting. Where a prospectus is published as a newspaper advertisement it is not necessary to specify the contents of the memorandum of association or the signatories thereto, and the number of shares subscribed for by them.
Statutory liability of directors in respect of a prospectus.—The liability of a director for breaches of the above provisions is not defined by the Act, but an action would lie for damages sustained by reason of non-compliance with the statute. In the event, however, of such non-compliance, a director, or other person responsible for the prospectus, does not incur any liability by reason of that non-compliance, if he can prove that—(a) as regards any matter not disclosed he was not cognizant thereof; or (b) the non-compliance arose from an honest mistake of fact on his part. But in the event of non compliance with requirement (13), no director or other person incurs a liability in respect of the non-compliance unless it is proved that he had knowledge of the matters not disclosed. Section 85 provides that no allot ment shall be made of any share capital of a company unless the following conditions have been complied with : (a) the amount (if any) fixed by the memorandum or articles of association and named in the prospectus as the minimum subscription upon which the directors may proceed to allotment ; or (b) if no amount is so fixed and named, then the whole amount of the share capital so offered for subscription has been subscribed and paid for as named. The amount payable on application must not be less than 5 per cent. of the nominal amount of the share. If the above conditions have not been com plied with on the expiration of forty days after the first issue of the prospectus, all money received from applicants for shares shall be repaid, failure on the part of the directors to do so within forty-eight days of the issue of the pros pectus renders them personally liable to repay that money with 5 per cent. interest and costs. Proceedings against directors under this section must be instituted within two years of the date of allotment.
Liability for statements in a prospectus is the main burden of that Act It attaches thereunder to every one who is a director of a company at the time of the issue of the prospectus, and also to " every person who having authorised such naming of him is named in the prospectus or notice as a director of the company either immediately or after an interval of time, and every promoter of the company, and every person who has authorised the issue of the prospectus or notice." And the liability is to pay com
pensation to all persons who subscribe for shares, debentures, or debenture stock on the faith of the prospectus for the loss or damage they may sustain by reason of any untrue statement therein, or in any report or memorandum appearing on the face thereof, or by reference incorporated therein or issued therewith. Escape from this liability is only possible under certain circumstances, namely, where it is proved— • " (a) With respect to every such untrue statement riot purporting to be made on the authority of an expert, or of a public official document or statement, that he had reasonable ground to believe, and did up to the time of the allotment of the shares or debentures,. as the case may be, believe, that the statement was true ; and (b) with respect to every such untrue statement pur porting to be a statement by or contained in what purports to be a copy of or extract from a report or valuation of an expert, that it fairly represented the statement or was a correct and fair copy of or extract from the report or valuation. Provided that the director or other person who authorised the issue of the prospectus shall be liable to pay compensation as aforesaid if it be proved that he had no reasonable ground to believe that the person making the statement, report, or valuation was competent to make it ; and (c) with respect to every such untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, that it was a correct and fair representation of such statement or copy of or extract from such document. There would be no liability where it is proved 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 the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue he forthwith gave reasonable public notice that it was issued without his knowledge or consent ; or after the issue of such prospectus and before allot ment thereunder, he, on becoming aware of any untrue statement therein, withdrew his consent thereto, and caused reasonable public notice of such with drawal, and of the reason therefor, to be given.
A promoter so referred to means one who was a party to the pre paration of the prospectus, or of the portion containing the untrue statement ; it does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company. The word " expert" includes any person whose profession gives authority to a statement made by him.
Person improperly inserted as a director.—It may be that a prospectus is issued which contains the name of a person as a director, or as having agreed to become a director, and such person has not consented to become a director, or has withdrawn his consent before the issue of the prospectus. In such a case the directors of the company, except any without whose knowledge or consent the prospectus was issued, and any other person who authorised its issue, will be liable to indemnify the person improperly named as a director. This indemnification will extend to all damages, costs, charges, and expenses to which the latter person has been made liable by reason of his name having been inserted in the prospectus, or in defending himself against any action or legal proceedings brought against him in respect thereof. A director who, by reason of his having authorised the issue of a prospectus, becomes liable to pay damages or compensation is entitled to contribution, as in cases of contract, towards his liability- from those of his co-directors who are themselves similarly liable. But it would appear that a promoter has no such right of contribution. See DECEIT ; DIRECTORS ; FRAUD.