12.5.1 Steps which
are Necessary before the Issue of Prospectus. We have mentioned earlier
that a private company is prohibited from inviting public to subscribe to its
share capital and it arranges its share capital privately. The shares are subscribed
by a small number of Persons who are known to the promoters or are related to
them by family connections.
A public company may also decide not to invite public to
subscribe to its share capital and arrange its capital privately as in the case
of a private company. Under such circumstances, the public company is required
to submit a statement in lieu of prospectus with the Registrar o1 companies at
least three days before the allotment of shares is made.
However, a public company limited by shares, generally
issues shares to the public for which it has to issue a prospectus. In that
case it has to follow the procedure below.
After the certificate of incorporation is obtained, the
affairs of the company are taken over by the first directors appointed in
accordance with the provisions of law. They will elect one of their members as
the chairman of the Board of Directors, if none is named in the articles of
association. The Board attends to the following matters: (i) Appointment of
various expert agencies such as bankers, auditors secretary, etc. (ii) Entering
into underwriting contract, brokerage contracts. (iii) Making arrangements for
the listing of shares on stock exchanges. (iv) Drafting a prospectus for the
purpose of issue to the public.
The appointment of a banker is necessary as it has to
receive the share application along with application moneys. The appointment of
first auditor is in the hands of Board of directors and it becomes necessary,
as we shall see later, to make the appointment before the issue of prospectus.
The appointment of company secretary is obligatory in case of companies, having
the prescribed paid-up share capital (presently, Rs 50 lakhs or more). In other
companies also, the appointment of a company secretary is desirable.
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