Prospectus – An Overview

The Companies Act 2013 defines Prospectus of a Company as any document issued as a prospectus. It includes Shelf, Red Herring or any other document inviting offers from public for subscription of securities of the Company.

Prospectus- Meaning

It means a formal document that a Public Company issues to invite offers from public for subscribing its shares. It includes all the material information related to shares that a Company offers to the public. Furthermore, it usually help the investors to take investment decisions.


Contents of a Company Prospectus

  1. Name of the Company
  2. Registered Address of Company
  3. Objects of the Company
  4. Purpose of the issue
  5. Nature of Business
  6. Capital structure of Company
  7. Name and address of Signatories and no of shares subscribed by them
  8. Qualification shares of the Directors
  9. Particulars of Debentures and redeemable preference shares
  10. Remuneration of Directors and Promoters
  11. Minimum Subscription for allotment
  12. Date of opening and closing of issue
  13. Details of Underwriter
  14. Underwriting Commission and Brokerage
  15. Name and address of Auditor, Company Secretary, Banker and Trustee of Company
  16. Particulars of material documents
  17. Expected rate of dividend and voting rights

Requirements as to Issue of Prospectus of a Company

There are some requirements that company has to comply with before issuing it. Those are:-

  • There should be disclosure of material matters.
  • Moreover it must be dated.
  • Company must file a duly signed copy of it to ROC for its registration.
  • Furthermore, Company shall file it with various agencies such as SEBI, Stock exchanges and other agencies.
  • SEBI examines the draft of Prospectus to ensure disclosures and compliances.

Types of Prospectus

These are of different types. Some of them are:-

  1. Red Herring
  2. Shelf
  3. Abridged
  4. Deemed

Red Herring Prospectus

  • It is the offer document which contains all the details about the offer of securities. However it does not include quantum of issue and the price of securities.
  • Furthermore, it is not the final prospectus as Company can update it several times before the final issue.
  • Issuer company needs to file it with Registrar at least 3 days prior to the opening of offer.
  • It is named in such a way because it contains a para in Red ink. That states that Company is not attempting to sell the shares before approval of SEBI.

Shelf Prospectus

  • Company can issue more than one issue from the single document which we call Shelf Prospectus.
  • Furthermore, banks and financial institutions usually issue it.
  • In this case once the company files it with ROC, there is no need to file fresh prospectus at every issue.
  • However it has the validity of up to one year.
  • In case there is any change in the issue, then company can file such change in Information Memorandum.

Abridged Prospectus

  • It means a memorandum containing salient features of a prospectus.
  • Furthermore it contains the information in brief which helps the investor to take investment decision quickly.
  • In this case, Company needs to attach it along with every application form for purchase of securities.

Deemed Prospectus

  • It is a document which the company issues in case of offer for sale of securities to the public.
  • Moreover this document is an invitation to public to purchase the shares of company through an intermediary such as Issuing House.

Conclusion

A Prospectus is a legal document that a Public Company needs to issue for inviting public to subscribe its shares. However this requirement does not apply in case of Private Company as it cannot raise capital through public issue.

FAQs

Is private company also required to issue a prospectus?

A Private Company is not required to issue it. However Private Company needs to issue Private placement offer letter while making Private Placement.

What will be the consequence of misstatement in prospectus?

If there is any misstatement, then the persons who authorized the issue attracts the civil liability or criminal liability under Companies Act 2013.

Got Questions? Ask Away!

  1. Hello @Heer_Mandaliya

    Prospectus is a formal document that a Public Company issues to invite offers from public for subscribing its shares. It includes all the material information related to shares that a Company offers to the public. Furthermore, it usually help the investors to take investment decisions. Generally there are 4 types of Prospectus -

    1. Red Herring Prospectus
    2. Shelf Prospectus
    3. Abridged Prospectus
    4. Deemed Prospectus

    You can learn more about various Prospectus in detail here:

    Hope this helps!