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Chapter: Business Science : Merchant Banking and Financial Services : Issue Management Introduction

Preparation of Prospectus

Prospectus is defined a d public are solicited to subscribe to the share capital of a corporate entity. Its purpose is inviting the public for the subscription/purchase of any securities of a company.

PREPARATION OF PROSPECTUS ― Prospectus is defined a d public are solicited to subscribe to the share capital of a corporate entity. Its purpose is inviting the public for the subscription/purchase of any securities of a company.


1. Regular prospectus 2. Abridged prospectus 3. Prospectus for rights issue 4. Disclosures in prospectus 5. Disclosures in abridged prospectus and letter of offer


1. REGULAR PROSPECTUS The regular prospectus are presented in three parts




a.  General Information about the company e.g. Name and address of the registered office consent of the Central Government for the issue and names of regional stock exchanges etc., 


b. Capital Structure such as authorized, issued, subscribed and paid up capital etc.,


c. Terms of the issue like mode of payment, rights of instruments holders etc.,


d. Particulars of the issue like project cost, means of financing etc.,


e.  Company, Management and project like promoters for the project, location of the project etc. 


f. Disclosures of public issues made by the Company, giving information about type of issue, amount of issue, date of closure of issue, etc., 


g. Disclosure of Outstanding Litigation, Criminal Prosecution and Defaults 


h.  Perception of Risk factors like difficulty in marketing the products, availability of raw materials etc.




a. General Information 


b. Financial Information like Auditor’s Report, Chartered Accountant's Report etc.,


b.Statutory and Other Information 




a. Declaration i.e., by the directors that all the relevant provisions of the companies Act, 1956 and guidelines issued by the Government have been complied with. 


b. Application with prospectus 


2. ABRIDGED PROSPECTUS The concept of abridged prospectus was introduced by the Companies  (amendment)  Act  of  1988  to  make  the  public  issue  of  shares  an  inexpensive proposition. A memorandum containing the salient features of a prospectus as prescribed is called as ‘Abridged Prospectus’ .


3.  SELECTION OF BANKERS Merchant bankers assist in selecting the appropriate bankers based on the proposals or projects. Because the commercial bankers are merely financiers and their activities are appropriately arrayed around credit proposals, credit appraisal and loan sanctions. But merchant banking include services like project counseling , corporate counseling in areas of capital restructuring amalgamations, mergers, takeover etc., discounting and rediscounting of short term paper in money markets, managing, underwriting and supporting public issues in new issue market and acting as brokers and advisers on portfolio management in stock exchange. 


4.   ADVERTISING CONSULTANTS Merchant bankers arrange a meeting with company representatives and advertising agents to finalize arrangements relating to date of opening and closing of issue, registration, of prospectus, launching publicity campaign and fixing date of board meeting to approve and sign prospectus and pass the necessary resolutions. Publicity campaign covers the preparation of all publicity material and brochures, prospectus, announcement, advertisement in the press, radio, TV, investors conference etc., The merchant bankers help choosing the media, determining the size and publications in which the advertisement should appear. The merchant Bankers role is limited to deciding the number of copies to be printed, checking accuracy of statements made and ensure that the size of the application form and prospectus conform to the standard prescribed by the stock exchange. The Merchant banker has to ensure that the material is delivered to the stock exchange at least 21 days before the issue opens and to brokers to the issue, branches of brokers to the issue and underwriter in time. Securities issues are underwritten to ensure that in case of under subscription the issues are taken up by the underwriters. SEBI has made underwriting mandatory for issues to the public. The underwriting arrangement should be filed with the stock exchange. Particulars of underwriting arrangement should be mentions in the prospectus. The various activities connected with pres issue management are a time bound program which has to be promptly attended to. The execution of the activities with clockwork efficiency would lead to a successful issue. 




The registrars to an issue, as an intermediary in the primary market, carry on activities such as collecting application from the investors, keeping a proper record of applications and money received from investors or paid to the seller of securities and assisting companies in determining the basis of allotment of securities in consultation with stock exchanges, finalizing the allotment of securities and processing/dispatching allotment letters, refund orders, certificates and other related documents in respect of issue of capital. The share transfer agents maintain the records of holders of securities or on behalf of companies, and deal with all matters connected with the transfer/redemption of its securities. To carry on their activities, they must be registered with the SEBI which can also renew the certificate of registration. They are divided into two categories; a. Category I, to carry on the activities as a registrar to an issue and share transfer agent; b. Category II; to carry on the activity either as a registrar or as a share transfer agent. The registration is granted by the SEBI on the basis of consideration of all relevant matters and, in particular, the necessary infrastructure, past experience and capital adequacy. It also takes into account the fact that any connected person has not been granted registration and any director/partner/principal officer has not been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.


6. CAPITAL ADEQUACY FEE The capital adequacy requirement in terms of net worth (capital and free reserves) was Rs.6 lakh and Rs.3 lakh for Category I and Category II of registrars and share transfer agents respectively. However, the capital adequacy requirements are not applicable since November 1999 for a department/division of a body corporate maintaining the records of holders of securities issued by them and deal with all matters connected with transfer/ redemption of securities. The two categories of registrars and transfer agents had to pay an annual fee respectively of Rs.15, 000 and Rs.10, 000 for initial registration a well as renewal. With effect from November 1999, while Category I is required to pay a registration fee of Rs.50,000 and a renewal fee of Rs.40,000 every three years, Category II has to pay Rs.30,000 and Rs.25,000 respectively.







issue and share transfer agent should:


1. Maintain high standards of integrity in the conduct of its business. 


2. Fulfill its obligations in a prompt, ethical and professional manner. 

3. At all times exercise due diligence, ensure proper care and exercise independent professional judgment.

4.  Exercise adequate care, caution and due diligence before dematerialization of securities by confirming and verifying that the securities to be dematerialized have been granted listing permission by the stock exchange(s). 


5. Always endeavor to ensure that 


(a)Inquiries from investors are adequately dealt with; 


(b) Grievances of investors are redressed without any delay; 


(c)    Transfer of securities held in physical form and confirmation of dematerialization/ rematerialization requests and distribution of corporate benefits and allotment of securities is done within the time specified under any law. 


6. Make reasonable efforts to avoid misinterpretation and ensure that the information provided to the investors is not misleading. 


7. Not reject the dematerialization/ rematerialization requests on flimsy grounds. Such requests could be rejected only on valid and proper grounds and supported by relevant documents. 


8. Avoid conflict of interest and make adequate disclosure of its interest. 


9. Put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, should take reasonable steps to resolve the same in an equitable manner. 


10. Make appropriate disclosure to the client of its source or potential areas of conflict of duties and interest which would impair its ability to render fair, objective and unbiased services. 


11. Not indulge in any unfair competition, which is likely to harm the interests of other registrar to the issue and share transfer agent or investors or is likely to place him in disadvantageous position while competing for or executing any assignment. 


12. Always endeavor to render the best possible advice to the clients having regard to their needs. 13. Not divulge to other clients, press or any other person any confidential information 


about its clients which has come to its knowledge except with the approval/ authorization of the client or when it is required to disclose the information under any law for the time being in force.


14.    Not discriminate among its clients, save and except on ethical and commercial considerations. 

15.    Ensure that any change in registration status/any penal action taken by the SEBI or any material change in financials which may adversely affect the interest of clients/ investors is promptly informed to the clients.

16.                        Maintain the required level of knowledge and competence and abide by the provisions of the SEBI Act, rules, regulations, circulars and directions issued by the SEBI and also comply with the award of the Ombudsman under the SEBI (Ombudsman) Regulations, 2003. 


17.                        Co-operate with the SEBI as and when required. 


18.                        Not neglect or fail or refuse to submit to the SEBI or other agencies with which he is registered, such books, documents, correspondence, and papers or any part thereof as may be demanded/requested from time to time. 


19.                        Ensure that the SEBI is promptly informed about any action, legal proceeding, etc. Initiated against it in respect of any material breach or non-compliance by it, of any law, rules, and regulations, directions of the SEBI or of any other regulatory body. 


20.                        Take adequate and necessary steps to ensure that continuity in data and recordkeeping is maintained and that the data or records are not lost or destroyed. Further, it should ensure that for electronic records and data, up-to-date back up is always available with it. 


21.                        Endeavour to resolve all the complaints against it or in respect of the activities carried out by it as quickly as possible. 


22.                        (a) Not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real time, unless a disclosure of its long or short position in the securities has been made, while rendering such advice; (b) In case an employee of a registrar to an issue and share transfer agent is rendering such advice, the registrar to an issue and share transfer agent should ensure that it also discloses its own interest, the interests of his dependent family members and that of the employer including their long or short position in the security, while rendering such advice. 


23.                        Handover all the records/data and all related documents which are in its possession in its capacity as a registrar to an issue and/or share transfer agent to the respective clients, within one month from the date of termination of agreement with the respective clients within or within one month from the date of expiry/cancellation of certificate of registration as registrar to an issue and/or share transfer agent, whichever is earlier. 

24.                        Not make any exaggerated statement, whether oral or written, to the clients either about its qualifications or capability to render certain services or should its achievements in regard to services rendered to other clients.

25.  Ensure that it has satisfactory internal control procedures in place as well as adequate financial and operational capabilities which can be reasonably expected to take care of any losses arising due to theft, fraud and other dishonest acts, professional misconduct or omission. 


26.            Provide adequate freedom and powers to its compliance officer for the effective discharge of its duties. 


27. Develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out its duties as a registrar to an issue and share transfer agent and as a part of the industry. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance of conflict of interests, disclosure of shareholdings and interests, etc. 


28.            Ensure that good corporate policies and corporate governance are in place. 


29. Ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience). 


30.            Be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business. 


31. Not in respect of any dealings in securities be party to or instrumental for: (a) creation of false market, (b) price rigging or manipulations; (c) passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary. 




The registrars and share transfer agents have to maintain records relating to all applications received from investors in respect of an issue, all rejected applications together with reasons, basis of allotment of securities in consultation with the stock exchanges, terms and conditions of purchase of securities, allotment of securities, list of allottees and non-allotees, refund orders, and so on. In addition, they should also keep a record to the list of holders of securities of Corporates, the names of transfer agents to file the books of accounts, and records, and so on. These have to be preserved by them for a period of three years.




The SEBI is authorized to undertake the inspection of the books of accounts, other records, and documents of the registrars and share transfer agents to ensure that they are being maintained in a proper manner and the provisions of the SEBI Act, rules, regulations and the provisions of the SCRA and the relevant rules are complied with, to investigate into complaints from investors/other registrars and share transfer agents/other intermediaries in the securities market or any matter relating to their activities, and to investigate on its own in the interest of securities market/investors into their affairs. On the basis of the inspection report, the SEBI can direct the concerned partly to take such measures as it deems fit in the circumstances. It can also appoint a qualified auditor to investigate into the books of accounts and affairs of the registrars and share transfer agents.




A registrar/share transfer agent who fails to comply with any condition subject to which registration is granted, or contravenes any of the provisions of the SEBI Act/SCRA, rules/regulations and stock exchange bye-laws, rules and regulations is liable to suspension or cancellation of registration. The penalty for suspension is imposed for (a) violations of the provisions of the SEBI Act, rules/regulations, (b) non-observance of the code of conduct, (c) failure to furnish information, furnishing of wrong/false information, non-submission of periodical information and non-cooperation in any enquiry, (d) failure to resolve investor complaints or give a satisfactory reply to the SEBI in this behalf, (e) involvement in manipulation/price rigging/ cornering activities, (f) guilty of misconduct/improper business-like or unprofessional conduct business-like or unprofessional conduct, (g) failure to maintain capital adequacy requirement or to pay the requirement or to pay the requisite fee; and (h) violation of the conditions of registration. In case of their repeated defaults, the certificate of registration can be cancelled. The other reasons for cancellation of registration are deliberate manipulation/price rigging/ cornering activities affecting the securities market and the investor interest; violation of the provisions of the SEBI Act, rules/regulations; violation of any provisions of insider trading/ take-over regulations and guilty of fraud/conviction on a criminal offence. The procedure for inspection, holding enquiry and suspension/cancellation is the same as in the case of lead managers, underwriters, bankers to the issue, and so on.

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Business Science : Merchant Banking and Financial Services : Issue Management Introduction : Preparation of Prospectus |

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