Advertisement of Prospectus of the Company – Company Registration in Madurai

Advertisement of Prospectus of the Company – Companies Act, 1956: Section 66

Section 66 of the 1956 Act was constructed as an exemption from publication of extracts from the memorandum of association in newspaper advertisement, which are rendered by law to be a prospectus. The Companies (Amendment) Act, 2000 empowered SEBI to administer the provisions of section 66 of the 1956 Act in relation in listed companies and those which intended to get listed; however, the provisions relating to all other companies were to be administered by the Central Government. The Companies (Amendment) Act, 2000 also vested in SEBI the power to inspect books of account and other books and papers with respect to listed companies and the companies which intended to get listed. SEBI was also authorized to file complaints under section 621 of the 1956 Act for offences relating to issue and transfer of securities and non-payment of dividend.

Companies Act, 2013: Section 30

Section 30 of Act was notified vide SO 2754(E) and was in effect from 12.09.2013. Section 30 of the 2013 Act provides that if an advertisement of any prospectus is published in any manner, it would in fact need to specify the contents of the objects clause from its memorandum of association, the liabilities of members, the amount of the share capital of the company, the names and signatories to the memorandum as also the number of shares subscribed for by them along with the capital structure of the company. Therefore, it will be seen that section 30 in the 2013 Act is constructed in a manner that is diametrically opposite to how section 66 of the 1956 Act, was drafted.

SEBI (ICDR) Regulations, 2009 on advertisement

SEBI under Regulation 60 has prescribed general obligation of the issuer and intermediaries for public communications, publicity materials, advertisements and research reports.

Advertisements includes notices, brochures, show cards, catalogs, hoardings, placards, posters, insertions in newspaper, cover pages of offer documents, pictures and films in any print media, radio, television programs.

Issue advertisements

Any public communication including advertisement and publicity material issued by the issuer or research report made by the issuer or any intermediary concerned with the issue or their associates shall contain only factual information and shall not contain projections, estimates, conjectures, etc., or any matter extraneous to the contents of the offer document. In respect of all public communications, issue advertisements and publicity materials, the issuer shall obtain approval from the lead merchant bankers responsible for marketing the issue and shall also make copies of all issue related materials available with the lead merchant bankers at least till the allotment is completed. Any advertisements or research report issued or caused to be issued by an issuer, any intermediary concerned with the issue or their associates shall comply with the following:

• It shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not contain any statement, promise or forecast which is untrue or misleading;
• If it reproduces or purports to reproduce any information contained in an offer document, it shall reproduce such information in full and disclose all relevant facts and not be restricted to select extracts relating to that information.
• It shall be set forth in a clear, concise and understandable language;
• It shall not include any issue slogans or brand names for the issue except the normal commercial name of the issuer or commercial brand names of its products already in use;
• If it presents any financial data, data for the past three years shall also be included along with particulars relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividends and the book values;
• No advertisements shall use extensive technical, legal terminology or complex language and excessive details which may distract the investor;
• No issue advertisement shall display modes, celebrities, fictional characters, landmarks or caricatures or the likes;
• No issue advertisement shall contain statements which promise or guarantee rapid increase in profits;
• No issue advertisement shall appear in the form of crawlers (the advertisements which run simultaneously with the program in a narrow strip at the bottom of the television screen) on television;
• In any issue advertisement on television screen, the risk factors shall not be scrolled on the television screen and the advertisement shall advise the viewers to refer to the red herring prospectus or other offer document for details;
• No issue advertisements shall contain slogans, expletives or non-factual and unsubstantiated titles;
• If an advertisement or research report contains highlights, it shall also contain risk factors with equal importance in all respects in all respects including print size of not less than point seven size;
• An issue advertisement displayed on a billboard shall not contain information other than that specified in Parts A, B, and C of the Schedule 13, as applicable;
• Issue advertisements which contain highlights or information other than the details contained in the format as specified in Part A and B of Schedule 13 shall contain risk factors.

No advertisement shall be issued giving any impression that the issue has been fully subscribed or oversubscribed during the period the issue is open for subscription of the company.  An announcement regarding closure of issue shall be made only after the lead merchant banker(s) is satisfied that at least ninety per cent of the offer through offer document has been subscribed and a certificate has been obtained to that effect from the registrar to the issue: Provided that such announcement shall not be made before the date on which the issue is to be closed.  No advertisement or distribution material with respect to the issue shall contain any offer of incentives, whether direct or indirect, in any manner, whether in cash or kind or services or otherwise.  No product advertisement shall contain any reference, directly or indirectly, to the performance of the issuer during the period commencing from the date of the resolution of the Board of Directors of the issuer approving the public issue or rights issue till the date of allotment of specified securities offered such issue.

A research report may be prepared only on the basis of information, disclosed to the public by the issuer by updating the offer document or otherwise of the company.  No selective or additional information or information which is extraneous to the information disclosed to the public through the offer document or otherwise, shall be given by the issuer or any member of the issue management team or syndicate to any particular section of the investors or to any research analyst in any manner whatsoever, including at road shows, presentations, in research or sales reports or at bidding centers.

“public communication or publicity material” includes corporate, product and issue advertisements of the issuer, interviews by its promoters, directors, duly authorized employees or representatives of the issuer, documentaries about the issuer or its promoters, periodical reports and press releases.

An issue advertisement shall be considered to be misleading, if it contains:

(a) Statements made about the performance or activities of the issuer without necessary explanatory or qualifying statements, which may give an exaggerated picture of such performance or activities.

(b) An inaccurate portrayal of past performance or its portrayal in a manner which implies that past gains or income will be repeated in the future.

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