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Companies Rules – Prospectus and Allotment of Securities

Companies Rules – Prospectus and Allotment of Securities

The Government of India has set down certain rules regarding the companies prospectus and allotment of securities. These rules came into practice from the year 2014 and have been amended from time to time. These rules state the process of issuing a prospectus to invite subscribers to subscribe for the securities by a company. It also deals with the allotment of securities for the subscribers. This article deals with the companies prospectus and allotment of securities rules along with the amended rules.

Variations in Terms of Contracts or Objects

The company raises money through prospectus from the public and has not used the raised money. In such cases, it shall not show variations in the contract from the prospectus or in the objects for which there was an issue in the prospectus except for a special resolution. Moreover, the special resolution can pass only through a postal ballot. The following are the particulars necessary for the special resolution:

  • An object of the issue or the original purpose of the issue
  • The total amount of money raised
  • The utilisation of money for the object of the company
  • Provide the extent of the achievements of the proposed objects
  • The utilisation of the money that was raised through the prospectus
  • Particulars regarding the proposed variations
  • Justification and reason for wanting the variation
  • Set out the proposed time limit to achieve the proposed varied objects
  • Risk factors of the new objects
  • Other information for which the members have to make informed decisions

The advertisement of the notice to get the passed resolution shall be in the Form PAS-1. The advertisement will publish along with the dispatch of postal ballot notices to the shareholders. The website of the company shall also place a notice.

Offer of Sale by Members

The provisions and the rules of the Companies Prospectus and Allotment of Securities Rules let the members make an offer under Section 28 of the Companies Act, 2013. But there is an exception for making such an offer. The following are the exception:

  • Provisions that relates to the minimum subscription
  • Provisions for the minimum application value
  • The provisions which require the statements that are to be made by the board of directors regarding the utilization of money
  • Other provisions or information which the offerer cannot comply or gather, then the offerer must submit a detailed justification reasoning the disability to comply with the provisions

The prospectus shall include the member, members or entity who bear the cost to make an offer of the sale. However, it should consist of the reasons for bearing the cost.

Dematerialisation of Securities

The promoters of the public company who make a public offer regarding the convertible securities can hold those securities in the dematerialised form. But it should also provide that the company’s entire holding of the convertible securities which are in the physical form must be converted into a dematerialised form. However, such conversion should take place before making the offer. Moreover, after that, the promoter shareholding can take place only in the dematerialised form.

Issue of Securities in Dematerialised Form

Every unlisted public company can issue the securities in dematerialised form. They can also facilitate the dematerialisation in all the existing securities. The Companies Prospectus and Allotment of Securities Rules have certain provisions in accordance with the Depositories Act, 1996. Every unlisted company must dematerialise the entire securities of directors promoters or key managerial personnel before making an offer of issuing the securities or bonus shares, buyback of securities or rights offer.

Rules to Dematerialise the Securities

The holder of securities who intends to transfer the securities must dematerialise the securities before transferring. Any person intending to subscribe to the shares, then they have to dematerialise all their existing securities before subscription. The unlisted company must facilitate dematerialisation of all the existing securities by an application to a depository. They must also secure International Security Identification Number (ISIN) for each of the security. The company should inform the security holders of such facility. The company should pay the fees to the registrar and depository to an issue and share transfer agent. This should be in accordance with the agreement between the two parties. The company should also maintain security deposits which are of not less than 2 years. The company should comply with the rules and regulations of the Securities and Exchange Board or Depository.

A defaulted unlisted company cannot make an offer until the payment of the fees. There is also a provision to apply mutatis mutandis that is to make alterations without causing any changes in the main issue. The unlisted public company under this rule must submit Form PAS-6 to the Registrar. The company should submit it with the necessary fees as mentioned in the Companies (Registration Offices and Fees) Rules,2014. Such a submission must take place within 60 days before the half-year conclusion. A company secretary or a chartered accountant in practice must certify the form. If there is any difference in the dematerialised capital and issued capital, then the company must notify it to the depositories. The Investor Education and Protection Fund Authority will receive the grievances from the security holders of the unlisted company.


The following are the unlisted public company that is not applicable under this rule:

  • Government Company
  • Nidhi Company
  • Wholly-owned subsidiary

Shelf Prospectus and Information Memorandum

The company must prepare the information memorandum in Form PAS-2. They should file the form with the Registrar with the necessary fees. The process of submission should take place one month before the issuance of the second or the subsequent offers of the securities under the shelf prospectus.

Refund of Application Money

There will be repayment of application money within 15 days of the closure of the issue for two reasons when the company has not subscribed the minimum amount or has not paid the payable sum within the certain period. If there is any default in the repayment of the money, then the company directors shall be the officers in default. They are responsible for repaying the amount with an interest of 15% per annum. Moreover, the money will be refunded to the bank from which the subscription amount was paid.

Return of Allotment

If a company has a share capital and makes an allotment of the securities, then the company should file the return of the allotment in Form PAS-3 with the Registrar. This should take place within 30 days with the necessary fees. There should be an attachment of the list of the allottees with the details like their name, address and occupation. A signatory should certify the list in the form.

Attachments to Form PAS-3

An attachment of the contract which is duly stamped is necessary along with the alloted securities together with any contract of sale whether relating to an asset or property, contract for services or other consideration. This is for the securities that are paid partly or fully for consideration other than cash. The contract should not be in writing, and it requires the same stamp duty as that of the contract of writing. To file the particulars, the Registrar will receive the payable amount for stamp duty. It also requires the report of the registered valuer as an attachment for valuation of consideration. If there is an issue of bonus shares, then it requires the copy of the passed resolution in general meeting. The valuation report of the registered valuer ios necessary if the unlisted company’s convertible preference shares or equity shares are in the stock exchange.

Payment of commission

The company can pay commission in relation to the subscription or procurement of the subscription of the securities. The following are the conditions for such payment:

  • Authorisation in the article of association is necessary
  • The mode of payment can be from the profit or issue of the company
  • In the case of shares, the payment should not exceed 5% of the price of the issued shares or authorised rate of the articles, whichever is less. In the case of debentures, payment should not exceed two and a half per cent of the price of the issued debentures or authorised rate of the articles, whichever is less
  • The prospectus of a company should disclose the name of the underwriters. It should also disclose the amount of the payable commission. Furthermore, it should have the number of securities that are necessary to be subscribed or underwritten by the underwriter.
  • If the securities are not open to the public for subscription, then the underwriter will not receive commission
  • While delivering the prospectus, the copy of the commission should also be sent to the Registrar

Private Placement

A company cannot make an offer or invitation to subscribe the securities through private placement. It can do so only when the shareholders approve of the proposal through a special resolution. However, the following disclosure is necessary as an explanatory statement along with the notice of the approval:

  • Particulars of the offer which includes the date of passing the resolution by the board
  • Kinds of the securities and the price of such securities
  • Justification for the price of the offer
  • The name and the address of the valuer
  • The amount the company can raise from such securities
  • The material terms for raising such securities
  • Proposed time schedule
  • Objects or purposes of the offer
  • Contribution of the directors or promoters in furtherance of the object

To make an offer in a company, the person should not exceed more than 200 in a financial year. This does not apply to the non-banking financial companies under the Reserve bank of India. It is also not applicable to the housing finance companies under the National Housing Bank. The application form PAS-4 is for the application letter and the private placement offer. The Form PAS-5 is for maintaining the records of the private placement. The person subscribing the securities can pay through their bank account. The company should keep records of the bank account. Only after filing the Board resolution or the special resolution with the Registrar the company can issue the private placement.

The Form PAS-1, PAS-2, PAS-3, PAS-4 and PAS-5 are below for reference:


The Form PAS-6 is below for reference:

PAS 6 notification