Companies Act Section 28

Companies Act Section 28: Offer of Sale of Shares by Certain Members of Company

Section 28 of the Companies Act outlines the procedures and requirements for members of a company who wish to offer their shares for sale to the public. 

This section is vital for ensuring that the process is conducted in a transparent manner and that both the company and its members comply with the relevant laws and regulations. 

Below is a comprehensive overview of the provisions set forth in this section.

1. Procedure for Offering Shares

a. Consultation with Board

Engagement with the Board of Directors: 

Members of a company, whether they are individual shareholders or corporate entities, who intend to offer all or a portion of their shares to the public, must first consult with the Board of Directors. 

This step is crucial as it ensures that the intentions of the members are aligned with the company’s strategic objectives and that the offer complies with applicable legal requirements.

Prescribed Procedure: 

Following the consultation, the members may proceed with the offer in accordance with the prescribed procedures outlined in the relevant regulations. 

These procedures will typically encompass compliance with both the Companies Act and any additional regulatory frameworks, such as those established by the Securities and Exchange Board of India (SEBI), ensuring that the offer is conducted in a lawful and orderly manner.

2. Prospectus Requirement

a. Deemed Prospectus

Characterization of Offer Documents: 

In instances where members of a company use any document to make an offer of sale to the public, such documentation will be deemed a prospectus issued by the company itself. 

This classification is significant because it elevates the document to the same legal standing as a formal prospectus prepared by the company, triggering compliance with all relevant laws.

Applicable Laws and Liabilities: As a result of this designation, all applicable laws and regulations concerning the content of a prospectus come into play. 

This includes, but is not limited to, requirements for disclosure, accurate reporting of information, and liabilities associated with any misstatements or omissions made in the prospectus. 

Members must, therefore, ensure that any document used in the offer of sale is meticulously prepared to mitigate legal risks.

3. Authorization and Reimbursement

a. Authorization to Act

Collective Authorization Requirement: Members whose shares are being offered for sale must collectively authorize the company to manage all actions related to the offer of sale on their behalf. 

This collective action ensures that the company can effectively coordinate the sale process, and it also binds all members to the decisions made by the company during this process.

Role of the Company: The authorization empowers the company to act on behalf of the members, allowing it to facilitate the sale in a manner that adheres to all regulatory and procedural requirements. This structure not only streamlines the process but also provides a level of oversight and accountability.

b. Reimbursement of Expenses

Financial Responsibility of Members: Members participating in the offer of sale are required to reimburse the company for any expenses incurred in connection with the offer. 

This provision is crucial as it ensures that the financial burden associated with managing the sale does not fall on the company itself.

Scope of Reimbursement: 

The expenses that members may need to reimburse could include a variety of costs, such as legal fees, marketing expenses, and any administrative costs associated with the preparation and dissemination of the prospectus or other related documents. 

By mandating reimbursement, the Act helps to maintain the company’s financial integrity and discourages members from undertaking offers without due consideration of the associated costs.