Where a public company does not invites public to subscribe for it shares but arrange money from private sources, it needs not issue the prospectus to the public. But the company has to get its prospectus registered three days before the allotment of shares. Thus, the company not inviting public to subscribe, prepare a draft prospectus which contains the information given in schedule III of the act, such a draft prospectus is knows as a statement in lieu of prospectus.
Provisions: Only public company which does not invite public for subscription can issue this prospectus. Responsibility will be same as that when actual prospectus is issued.
When issued: Section 70(1) requires a public company having a share capital to file with the Registrar of Companies a statement called “Statement in lieu of prospectus” in the following cases:
(a) Where it does not issue a prospectus (because it feels that it can raise enough capital without inviting a subscription from the public); or
(b) Where it issues a prospectus but has not proceeded to allot any of the shares offered to the public for subscription (because the issue has been a failure and the minimum subscription has not been received)
Statement in lieu of prospectus must be filed with Registrar of Companies at least three days before any allotment of shares or debenture is made.
Form of statement in lieu of prospectus: Schedule III contains a model form of a statement in lieu of prospectus in pursuance of section 70; Schedule IV contains a model form of a statement in lieu of prospectus when a private company is converted into a public company in pursuance of section 44.
Consequences/Penalty for misstatement in, or not filing of, statement in lieu of prospectus: If the allotment of shares or debenture is made without filing the statement in lieu of prospectus.
(i) The allottee may avoid the allotment within two months after the statutory meeting, or where no such meeting is held, within two months of the allotment [section 71(1)]
(ii) The person who authorized the delivery of SLP may be punished with imprisonment upto 2 years or with fine Rs. 50,000 or with both. [section 70(5)]
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