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 reauirements
 are as follows: —
I. A prospectus must be prepared, containing the particulars
 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 particular
 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.