Section 2(70) of the Companies Act 2013 defines Prospectus as “any document issued for advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate”.
A Prospectus is a legal document provided by the Company when the Company wants to sell its securities. it contains all the necessary details about the sale, that includes the company’s financial position, the number of shares offered and types of securities being offered, etc
For a document to be called a prospectus, it should satisfy two conditions.
- The document invites the subscription to public share or debentures, or deposits.
- The invitation is made to the public.
- The invitation is made by the company or on behalf the company.
- The invitation is related shares, debentures or such other instruments.
Advertisement of prospectus:
Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of the prospectus. In any manner where an advertisement of any prospectus of a company is published, it shall be necessary to specify therein the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and the names of the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure.
Types of Prospectus
Red Herring Prospectus
Red Herring Prospectus
Red Herring Prospectus is generally issued before the prospectus when the Company is proposing to make an offer and it does not contain the details about the price of securities being offered. This prospectus is required to be filed with the Registrar before the offer.
Shelf prospectus is stated under section 31 of the Companies Act, 2013. Shelf prospectus is issued when a company or any public financial institution offers one or more securities to the public. A company shall provide a validity period of the prospectus, which should not be more than one year. The validity period starts with the commencement of the first offer. There is no need for a prospectus on further offers. The organization must provide an information memorandum when filing the shelf prospectus.
Abridged prospectus is a summary of a prospectus filed before the registrar. It contains all the features of a prospectus. An abridged prospectus contains all the information of the prospectus in brief so that it is easy for an investor to know all the useful information quickly.
Section33(1) of the Companies Act, 2013 also states that when any form for the purchase of securities of a company is issued, it must be accompanied by an abridged prospectus.
A deemed prospectus has been stated under section 25(1) of the Companies Act, 2013.
A document will be considered as a deemed prospectus through which the offer is made to the public for sale when any company offers securities for sale to the public, allots or agrees to allot securities. The document is deemed to be a prospectus of a company for all purposes and all the provision of content and liabilities of a prospectus will be applied upon it.
A prospectus is a document where the shareholders form an opinion of its financial position and market share hence a prospectus is a very important document and must be made by utmost care.