Floatation

When a company has been registered and has received its certificate of incorporation, it is ready for ‘floatation’ that is to say, it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily.

We have seen earlier under ‘classification of companies’ that a private company is prohibited from inviting public to subscribe to its share capital. Therefore, when a private company is formed, the necessary capital is obtained from friends and relative by private arrangement.

In the case of a public company also, the promoters may not invite public to subscribe to its share capital and may arrange the capital privately as in the case of a private company. In such a case, the intention of the promoters is to take advantages of incorporation not available to a private company, e.g., to have unlimited number of members, to confer unrestricted right to transfer shares on the members, etc. However, by far larges number of public companies raise their capital in the very first instance by inviting public to subscribe to its share capital.

Section 70 makes it obligatory foe every public company to take either of the following two steps: (i) Issue a prospectus in case public is to be invited to subscribed to its capital, or (ii) Submit a ‘statement in lieu of prospectus’ in case capital has been arranged privately. It must be done at least 3 days before allotment.