Prospectus and Share Capital Basics: Meaning, Contents, Misstatement, Shares, Share Capital and Allotment Overview Questions

Question 1

What is a share (one line)?

Accepted Answer

A share is a unit of **ownership interest** in the share capital of a company.

Question 2

State one purpose of issuing a prospectus.

Accepted Answer

One purpose is to enable investors to make an **informed decision** by providing required disclosures.

Question 3

Define prospectus.

Accepted Answer

A **prospectus** is a document issued by a company inviting the public to subscribe for its securities and disclosing material information about the company.

Question 4

What is misstatement in a prospectus?

Accepted Answer

Misstatement means an **untrue statement** or omission of a **material fact** in the prospectus that misleads investors.

Question 5

Allotment of shares creates a binding contract. (True/False)

Accepted Answer

True. Allotment is the company’s **acceptance** of the share application, creating a binding contract with the applicant.

Question 6

State one type of share capital.

Accepted Answer

**Authorised capital** is one type of share capital (also issued/subscribed/paid-up).

Question 7

List any three contents of a prospectus (exam points).

Accepted Answer

Any three contents:

- company’s business/objects and registered office
- **capital structure** and terms of issue
- details of directors/promoters and their interests
- financial information/auditor report (as required)

These disclosures help investors evaluate the offer.

Question 8

Differentiate civil and criminal liability for misstatement in a prospectus using a table.

Accepted Answer

Civil vs criminal liability:

| Basis | **Civil** | **Criminal** |
|---|---|---|
| Nature | compensation/damages | punishment (fine/imprisonment) |
| Trigger | investor loss due to misstatement | serious/fraudulent misstatement (concept) |
| Who acts | investor claims | state/regulator prosecutes |

Thus, civil remedies compensate; criminal penalties punish wrongdoing.

Question 9

Explain types of share capital using a table (any five).

Accepted Answer

Types of share capital:

| Type | Meaning |
|---|---|
| **Authorised** | maximum allowed |
| Issued | offered out of authorised |
| Subscribed | taken by applicants |
| Called-up | amount called to pay |
| **Paid-up** | amount actually paid |

These categories show the stages of capital from permission to actual receipt.

Question 10

Write the allotment process as a simple flow and state one key rule.

Accepted Answer

Allotment flow:

Application → Board decision → **Allotment** → Communication → Contract formed

One key rule: allotment must be made by proper authority (board) and **communicated** to the applicant.

Question 11

State any three defences against liability for misstatement in a prospectus (brief) using a table.

Accepted Answer

Any three defences:

| Defence | Brief idea |
|---|---|
| **Due diligence** | reasonable care; belief statement was true |
| Expert reliance | relied on expert report in good faith |
| No reliance | investor knew truth / did not rely |
| Withdrawal of consent | consent withdrawn before issue (where applicable) |

These defences reduce/avoid liability when the person acted honestly and reasonably.

Question 12

Explain contents and importance of a prospectus (exam-style) with a table and conclusion.

Accepted Answer

### Contents (examples)

| Content area | Example disclosures |
|---|---|
| Company info | business, objects, registered office |
| **Management** | directors/promoters and interests |
| Financials | statements, auditor report (as required) |
| Issue terms | price, timing, minimum subscription (concept) |

### Importance
It ensures **disclosure**, transparency and investor protection.

### Conclusion
Thus, a prospectus is the key disclosure document enabling informed investment decisions and legal compliance.

Question 13

Explain misstatement in prospectus and liabilities (civil and criminal) with defences (exam-style) using a table and conclusion.

Accepted Answer

### Misstatement
Misstatement is an **untrue statement** or omission of a **material fact** that misleads investors.

### Liabilities
| Liability | Meaning |
|---|---|
| **Civil** | damages/compensation to investors |
| **Criminal** | penalties for serious/fraudulent misstatement |

### Defences (brief)
- **due diligence** and reasonable belief
- reliance on expert report in good faith
- withdrawal of consent before issue (where applicable)

### Conclusion
Therefore, the law enforces strict disclosure and holds responsible persons accountable to protect investors and maintain market integrity.

Question 14

Write an exam-style answer on shares and share capital: meaning, types and significance (include a table and conclusion).

Accepted Answer

Meaning:
- **Share**: unit of ownership.
- **Share capital**: capital raised by issue of shares.

| Type | Meaning |
|---|---|
| **Authorised** | maximum permitted |
| Issued | offered |
| **Paid-up** | received |

Thus, share capital provides permanent funds and defines ownership/control.

Question 15

Explain allotment of shares: meaning, key conditions and consequences (exam-style) with a table and conclusion.

Accepted Answer

### Meaning
Allotment is the company’s acceptance of a share application, creating a binding contract.

### Key conditions (overview)
- made by proper authority (board)
- within reasonable time and as per issue terms
- **communication** of allotment
- compliance with legal requirements (concept)

| Consequence | Effect |
|---|---|
| Contract formed | applicant becomes entitled to shares |
| Rights/obligations | applicant must pay as called; company must issue shares |

### Conclusion
Proper allotment procedures protect investors and ensure lawful share issuance.

Prospectus and Share Capital Basics: Meaning, Contents, Misstatement, Shares, Share Capital and Allotment Overview

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