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.
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
- Name of the Company
- Registered Address of Company
- Objects of the Company
- Purpose of the issue
- Nature of Business
- Capital structure of Company
- Name and address of Signatories and no of shares subscribed by them
- Qualification shares of the Directors
- Particulars of Debentures and redeemable preference shares
- Remuneration of Directors and Promoters
- Minimum Subscription for allotment
- Date of opening and closing of issue
- Details of Underwriter
- Underwriting Commission and Brokerage
- Name and address of Auditor, Company Secretary, Banker and Trustee of Company
- Particulars of material documents
- 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:-
- Red Herring
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.
- 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.
- 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.
- 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.
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.
A Private Company is not required to issue it. However Private Company needs to issue Private placement offer letter while making Private Placement.
If there is any misstatement, then the persons who authorized the issue attracts the civil liability or criminal liability under Companies Act 2013.