CHAPTER VI 
PROSPECTUS AND ALLOTMENT 
BEFORE a newly incorporated company (other than a private 
company, as to which see Chapter XXII) can commence 
business or exercise its borrowing powers, certain formalities 
must be complied with. For this purpose, companies may be 
divided into two classes: companies which issue a prospectus 
on or with reference to their formation, and companies which 
0 not. 
Commence- A company which issues a prospectus on or with reference 
ment of to its formation, or, in other words, a company of which the 
Business ic first active step is to make a public issue of shares, must 
Legon. comply with the relevant requirements of ss. 34, 35, 39 and 
04 of the Act before commencing business. These reauire- 
ments are as follows: — 
I. A prospectus must be prepared, containing the par- 
ticulars required by law. A prospectus is defined by s. 380 
as ‘any prospectus, notice, circular, advertisement, or other 
invitation, offering to the public for subscription or purchase 
any shares or debentures of a company.” The word is 
accordingly not limited to the formal document known as a 
prospectus, but includes any document, however informal, 
which offers to the public shares or debentures of the company. 
In this connection it must be remembered that under s. 380 
‘debenture’ includes debenture stock, bonds and any other 
securities of a company whether constituting a charge on 
the assets of the company or not. Whether or not a par- 
ticular document amounts to an invitation to the public 
to subscribe is often a difficult question of fact. S. 35 (5), 
however, provides that a circular or notice to existing members 
or debenture holders, inviting them to subscribe, is not an 
offer to the public, even though the members or debenture 
holders may have the right to renounce in favour of other 
persons. An offer of shares to the public for subscription 
must be distinguished from an offer for purchase within s. 356 
as under subsection 7 of that section a person shall not in 
relation to a company be regarded as not being a member of 
the public by reason only that he is a holder of shares in the 
company. 
Prospectus.