PROSPECTUS. A prospectus is any notice, circular, advertisement, or other invitation, offering to the public for sub scription or purchase any shares or deben tures of a company.
A form of application for shares is usually sent out along with the prospectus. This form is filled up by anyone desiring shares and is forwarded, along with the amount payable on application, to the company or its bankers. When the shares are allotted by the company a letter of allotment is sent to the applicant. (See ALLOTMENT.) The name of the company's bankers usually appears upon a prospectus. Unless the banker actually joins in the invitation to the public to subscribe, he is not liable for any statements contained in the prospectus. A company should always obtain a banker's permission before putting his name in a prospectus, for although the insertion of a banker's name does not in any way act as a guarantee or a recommendation to the pub lic, there is no doubt that it may have a considerable influence in moving many persons to take up the investment.
The Companies (Consolidation) Act, 190S, provides :— behalf of a company, or by or on behalf of any person who is or has been engaged or interested in the formation of the company, must state : " (a) the contents of the memor andum, with the names, descriptions, and addresses of the signatories, and the number of shares subscribed for by them respectively ; and the number of founders or management or deferred shares, if any, and the nature and extent of the interest of the holders in the property and profits of the company ; and " (b) the number of shares, if any, fixed by the articles as the qualification of a director, and any provision in the articles as to the remunera tion of the directors ; and " (c) the names, descriptions, and addresses of the directors or proposed directors ; and " (d) the minimum subscription on which the directors may proceed to allotment, and the amount payable on ap plication and allotment on each share ; and in the case of a second or subsequent offer of shares, the amount offered for subscription on each previous allotment made within the two preced ing years, and the amount actually allotted, and the amount, if any, paid on the shares so allotted ; and " (e) the number and amount of shares and debentures which within the two preceding years have been issued, or agreed to be issued, as fully or partly paid up otherwise than in cash, and in the latter case the extent to which they are so paid up, and in either case the con sideration for which those shares or debentures have been issued or are proposed or intended to be issued ; and " (I) the names and addresses of the vendors of any property purchased or acquired by the company, or proposed so to be purchased or ac quired, which is to be paid for wholly or partly out of the proceeds of the issue offered for subscription by the prospectus, or the pur chase or acquisition of which has not been com pleted at the date of issue of the prospectus, and the amount payable in cash, shares, or debentures, to the vendor, and where there is more than one separate vendor, or the company is a sub-purchaser, the amount so payable to each vendor : Provided that where the vendors or any of them are a firm the members of the firm shall not be treated as separate vendors ; and (g) the amount (if any) paid or payable as purchase money in cash, shares, or debentures, for any such property as aforesaid, specifying the amount (if any) payable for goodwill ; and " (h) the amount (if any) paid within the two preceding years, or payable, as com mission for subscribing or agreeing to subscribe, or procuring or agreeing to procure subscriptions, for any shares in, or debentures of, the company, or the rate of any such commission : Provided that it shall not be necessary to state the com mission payable to sub underwriters ; and " (i) the amount or estimated amount of preliminary expenses ; and " (j) the amount paid within the two preceding years or in tended to be paid to any promoter, and the considera tion for any such payment ; and " (k) the dates of and parties to every material contract, and a reasonable time and place at which any material con tract or a copy thereof may be inspected : Provided that this requirement shall not apply to a contract entered into in the ordinary course of the business car ried on or intended to be carried on by the company, or to any contract entered into more than two years before the date of issue of the prospeclus ; and " (/) the names and addresses of the auditors (if any) of the company ; and " (m) full particulars of the nature and extent of the interest (if any) of every director in the promotion of, or in the property proposed to he acquired by, the company, or, where the interest of such a director consists in being a partner in a firm, the nature and extent of the interest of the firm, with a statement of all sums paid or agreed to be paid to him or to the firm in cash or shares or otherwise by any person either to induce him to become, or to qualify him as, a director, or, otherwise for services rendered by him or by the firm in connection with the promotion or forma tion of the company ; and " • where the company is a com pany haying shares of more than one class, the right of voting at meetings of the company conferred by the several classes of shares respectively.
Where any such prospectus as is mentioned in this Section is pub lished as a newspaper advertisement, it shall not he necessary in the advertisement to specify the con tents of the memorandum or the signatories thereto, and the number of shares subscribed for by them. This Section shall not apply to a circu lar or notice inviting existing mem bers or debenture holders of a com pany to subscribe either for shares or for debentures of the company, whether with or without the right to renounce in favour of other persons, but subject as aforesaid, this Section shall apply to any prospectus whether issued on or with reference to the formation of a company or subsequently.
" (81 The requirements of this Section as to the memorandum and the qualifica tion, remuneration, and interest of directors, the names, descriptions, and addresses of directors or pro posed directors, and the amount or estimated amount of preliminary expenses, shall not apply in the case of a prospectus issued more than one year after the date at which the company is entitled to commence business!' A company which does not issue a pros pectus with reference to its formation must file with the registrar a statement, in lieu of a prospectus. The statement must he in the form set out in the second Schedule to the above Act. This does not apply to a private company. (Section 82.) All persons who are responsible for the issue of a prospectus are liable to pay com pensation to anyone who subscribes for any shares or debentures, on the faith of the prospectus, for loss or damage they may have sustained by reason of any untrue statement therein, unless it can be proved that they acted honestly in making the statements. (See COMPANIES.i