Companies Act Section 25

Companies Act Section 25: Document Containing Offer of Securities for Sale to be Deemed Prospectus

Section 25 of the Companies Act addresses the treatment of documents that contain offers of securities for sale. 

This section outlines the criteria under which such documents are deemed to be a prospectus and delineates the associated legal implications. 

Here’s a comprehensive exploration of the key components of this section.

1. Deemed Prospectus

a. Application

When a company allocates or agrees to allocate any of its securities with the intention that all or part of these securities will be offered for sale to the public, any document making such an offer is considered a prospectus issued by that company. 

Legal Implications: 

This classification means that the document is subject to all the laws and regulations governing the content of a prospectus. 

Therefore, the same standards apply regarding the accuracy and completeness of the information contained within the document. 

If there are any misstatements or omissions in the document, the liabilities associated with these errors will be enforced as if the securities were directly offered to the public for subscription, and as if those accepting the offer were actual subscribers to the securities. 

2. Evidence of Intent to Offer Securities

a. Presumption of Intent

For the purposes of this Act, there is a presumption that an allotment or agreement to allot securities was made with the intent to offer these securities for sale to the public. 

This presumption can be established through the following:

Timeframe for Offer: 

If an offer to sell the securities, or any portion of them, is made within six months following the allotment or agreement to allot those securities, this serves as evidence of intent to offer them for public sale.

Consideration Not Fully Received: 

Additionally, if at the time the offer is made, the total consideration expected by the company for the securities has not yet been fully received, this condition further supports the presumption of intent.

3. Modification of Section 26

a. Requirements for Prospectus

Section 26 of the Companies Act, as it applies under this section, mandates certain requirements regarding the contents of the prospectus:

Information Required: 

Net Amount of Consideration: 

The prospectus must specify the net amount of consideration that has been received or is expected to be received by the company concerning the securities being offered.

Contract Inspection: It should also indicate the time and place where the contract, under which the securities have been or will be allotted, can be inspected. 

This ensures transparency and allows potential investors to review the relevant documentation before making any decisions.

Deeming Provision: 

Individuals making the offer are deemed to be the persons named in a prospectus as directors of the company. 

This provision establishes clear accountability for the contents and implications of the prospectus.

4. Signature Requirements for Documents

a. Companies or Firms Making Offers

If the offer is made by a company or a firm, the document referred to in subsection (1) can be signed on behalf of the company or firm in the following manner:

Company Signatures: The document must be signed by:

Two Directors: This is the standard requirement for companies, ensuring that there is a level of oversight and authority in the signing process.

Firm Signatures: If the offer is made by a firm, it is sufficient if the document is signed by:

At Least Half of the Partners: This ensures that a significant portion of the firm is involved in the decision to make the offer, reflecting collective agreement.