Statement in Lieu of Prospectus

Meaning. A public company does not always raise its capital by inviting the general public. Sometimes the entire capital is arranged privately — through the company's own promoters, directors and their personal contacts — without a single share ever being offered to the public at large; this can happen, for instance, when a private company converts into a public company but continues to raise its further capital privately rather than through a public issue. In such a case the company issues no prospectus at all, since there is no invitation to the public to respond to. The Maharashtra HSC Secretarial Practice syllabus, following the settled treatment of this topic in Indian company law, requires such a company instead to file with the Registrar of Companies a document called a Statement in Lieu of Prospectus before it allots any shares.

Purpose and Contents. A Statement in Lieu of Prospectus exists so that the standard of disclosure the law expects for a public company's shares does not depend on whether the capital happens to have been raised publicly or privately. It sets out substantially the same broad categories of information a prospectus would have disclosed — the company's objects and business, its directors and their interests, its capital structure and the shares being allotted, and its financial position — even though there is no public application form and no public subscription list attached to it. Filing it, duly signed by every person named as a proposed director, is treated as a condition that must be satisfied before allotment, in much the same way that reaching the minimum subscription is a condition for allotment under an actual prospectus. …