Outline the provisions of the Companies Act, relating to civil and criminal liability in respect of non compliance with provisions relating to a prospectus on the Company and the directors.

Civil Liability
Under section 45 (1) of the Companies Act a third party who suffers loss or damage reason of subscribing for shares or debentures of a Company on the faith of prospectus containing any untrue statement is entitled to compensation for the loss or damage any of the following persons:
• Every person who was a director of the Company at the time of issue.
• Every person who had authorized himself to be named as a director in the prospectus and was so named.
• Every person who had agreed to become a director of the Company either immediately or after an interval of time.
• Every person who was a promoter of the Company.
• Every person who authorized the issue of the prospectus.

However, sections 45 (2) and (3) of the Companies Act prescribe specific defences to directors and experts sued under section 45 (1).

Criminal liability
• Under section 40(3) of the Act it is a criminal offence to issue any form of application for shares or debentures of a company without a prospectus which complies the provisions of the Companies Act. A person guilt of contravening such provision is liable to a fine not exceeding Kshs. 10,000.
• Under section 42 (2) of the Act it is a criminal offence to issue a prospectus containing a statement purporting to have been made an expert without such expert‟s written consent. The company and every person knowingly a party to the issue liable to a fine not exceeding Kshs. 10,000.
• Under section 43 (5) of the Act it is a criminal offence to issue a prospectus before a copy thereof has been delivered to the registrar for registration. The company and every person who is knowingly a party to the issue are liable to a fine not exceeding Kshs. 100 for every day until a copy thereof is delivered.
• Under section 43(5) of the Act is a criminal offence to deliver to the registrar for registration a copy of a prospectus without the necessary annextures. The company and every person who is knowingly a party to the issue are liable to a fine not exceeding Kshs. 100 for every day until a copy with the necessary annextures is delivered.
• Under section 46 (1) of the Act, it is a criminal offence to authorize the issue of a prospectus containing any untrue statement. A person guilty of contravening this section is liable to a fine not exceeding Kshs. 10,000 or imprisonment for a term not exceeding 2 years or both. However the accused escapes responsibility providing either that:
o The false statement was immaterial.
o He has reasonable grounds to believe and did believe up to the time ofissue that the statement was untrue.

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