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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Shareholders of Kaveri Foods Ltd. allot themselves shares and, three months later, offer those shares to the public through a document. Under section 25 of the Companies Act, 2013, how is that document treated?

The document is deemed to be a prospectus issued by the company. An offer for sale to the public within six months of allotment is evidence the allotment was made with a view to sale, so the prospectus liability rules apply.

  1. AIt is a private circular with no legal consequence
  2. BIt is deemed to be a prospectus issued by the companyCorrect
  3. CIt is treated as a letter of offer for a rights issue
  4. DIt is deemed a prospectus only if the offer was made after six months of allotment

Explanation

Section 25(1) deems any document by which securities allotted with a view to offer for sale to the public are offered, to be a prospectus issued by the company. Under section 25(2)(a), an offer made within six months of allotment is evidence of that intent, so the six-month condition in the last option is wrong.

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