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CompaniesAct.in: Graduated Exit Opportunity for Change in Object Clause or Prospectus CompaniesAct.in
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Updated On: 28/06/2014

Now updated based on Final Rules

An exceptional move to reiterate that investor protection comes first when the entrepreneur goes back on his word in the prospectus and wishes to deploy funds for a different purpose.

As there was dearth of provisions to protect the untainted minority shareholders, the Companies Act 2013 in its aim of investor protection has introduced steps for exit opportunity. An opportunity provided to the stakeholders to exit from the company at the instance of change in the objects of the company or change in the prospectus of the company.

The prospectus issued by a company is a very important document. Besides informing the public about the newly formed company, it also entails consequences of creating belief and confidence in the minds of prospective investors by inducing them to invest in the company. Similarly seeking the industrial growth, objects of a company are the base of the credence of which the stakeholder invests in a company.  The prospectus and the objects advertise the advantages that one can gain by becoming a shareholder and hence with the increasing number of frauds and scams by companies in the modern era, it has become increasingly important to protect the interest of the investor.

Salient Features of the New Law

In the pro- investor Companies Act of 2013,dissenting shareholders are being given an exit offer by promoters or controlling shareholders subject to such manner and conditions as may be specified by Securities and Exchange Board of India (SEBI) under the following conditions

  • Alteration in the objects stated in the Memorandum , for which money has been raised and the company still has any unutilized amount out of the money so raised
  • Variation in the term of the contract referred to in the prospectus or objects for which the prospectus was issued..

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