Question

Which of the following statements are correct?
(i) A red herring prospectus may be issued prior to the issue of a prospectus.
(ii) The shares of any member in a company shall be movable property.
(iii) The debentures of any member in a company shall be movable property.
(iv) The interest of any member in a company shall be not be movable property.

• A. Only (i), (ii), and (iii)
• B. Only (i), and (ii)
• C. Only (ii), and (iii)
• D. Only (ii), and (iv)

Hint:

A red herring prospectus does not include complete particulars of the quantum or price of the securities.
It is used during book-building to determine the market price of the shares.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks us to identify the correct statements regarding red herring prospectuses and the legal classification of shares, debentures, or other member interests in a company.

Step 2: Key Principles and Statutory Provisions:
Section 32 of the Companies Act, 2013, governs red herring prospectuses.
Section 44 of the Companies Act, 2013, defines the legal nature of shares, debentures, and member interest.

Step 3: Detailed Explanation and Analysis:

• Section 32(1) explicitly states: "A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus."
A red herring prospectus is an incomplete prospectus containing approximate data on price and quantity.
Therefore, statement (i) is correct.

• Section 44 states: "The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company."
Therefore, statement (ii) is correct.
Therefore, statement (iii) is correct.

• Since Section 44 declares all forms of member interest as movable property, statement (iv), which states that member interest is *not* movable property, is incorrect.

Step 4: Final Answer:
Statements (i), (ii), and (iii) are correct, which corresponds to Option A.