Introduction 

In this article you will get information about "Prospectus In Company Law".When a public company decides to raise funds from the general public then it is required to issue a document known as "Prospectus". Where the promoters of a public company decide to not to invite the public to subscribe to its shares and debentures and are confident of raising the required capital privately from their friends or relatives, they need not issue a prospectus. In such a case,the company files a statement in lieu of a prospectus with the Registrar. A private company is prohibited to issue a prospectus since it cannot invite the general public to subscribe to its shares and debentures. It is also not required to file a statement in lieu of a prospectus. 

Definition Of Prospectus

In simple words, a prospectus can be defined as an invitation to the public to subscribe to a company's securities. With the Amendment Act of 1974, any document that invites deposits from the public shall also come within the definition of prospectus. The word " Prospectus " means a document which invites deposits from the public or invites offers from the public to buy shares or debentures of the company. 
A company releases prospectus to inform the public and investors about various securities that are available. The document informs about bonds, stocks, mutual funds and other types of investments offered by the company. The aim of issuing a prospectus is arousing the interest of the proposed investors so that they subscribe to the shares and debentures of the company. 



Objects Of A Prospectus

Prospectus is considered as an important document because of the following reasons:-

1. Invitation:-

It acts as an invitation by the company to the general public for subscribing to its shares, debentures Or deposits. 

2. Advertisement:-

It serves as a medium of advertisement as it provides information to the public about the present operations and future prospectus of the company. 

3. Authentic Record:-

It acts as an authentic record of the terms and conditions of issue and allotment of shares or debentures of the company. 

4. Protection:- 

It protects the interests of the investors who invest their money on the faith of the information given in the prospectus by making the directors of the company responsible for the statement in the prospectus . Any misstatement in the prospectus attracts both criminal and civil liability of people who authorize the issue of the prospectus. 



Conditions For A Document To Considered As A Prospectus 

For any document to considered as a prospectus, it should satisfy these conditions:-

1. The document should act as an invitation by the company to the general public for subscribing its shares, debentures Or deposits. 

2. Such an invitation should be made to the public. 

3. The invitation should be made by the  company or on the behalf of the company. 

4. The invitation should relate to shares, debentures or other instruments. 


Provisions Regarding The Advertisement Of Prospectus 

Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of prospectus. According to this section, when in any manner the advertisement of a prospectus is published, it is compulsory to specify the contents of the memorandum of association of the company. It should specify the information about prospectus object, members liabilities, amount of the company's share capital, shareholders and number of shares subscribed by them, name of the domicile where company incorporate and capital structure of the company. 

Types Of Prospectus

1. Abridged Prospectus [ section 2(1) ]:- 

No company can issue any form of application for shares or debentures of a company until and unless it is accompanied by a memorandum having such salient features of prospectus as may be prescribed. An abridged prospectus is basically a summary of the prospectus containing all the details as may be prescribed by the SEBI. 

2. Shelf Prospectus [section 31]:- 

It is a type of public offering under which companies are allowed to offer securities to the public without a seperate prospectus for each issue of the same class. As per the section of 31 of the companies Act 2013,the term 'Shelf Prospectus' means " a prospectus in respect of which the securities or class of securities included there in are issued for subscription in one or more issues over a certain period without the issue of a further prospectus ".

3. Deemed Prospectus [section 25(1) ]:-

Where a company allots or agrees to allot any of its securities to an intermediary for sale to the public then any document by which this offer of sale to the public is made, is termed as Deemed Prospectus. Instead of offering its securities to the public, a company may allot them to an intermediary known as Issuing house. After this, the Issuing house invites the general public to subscribe to the securities by an advertisement or circular of its own. This circular or advertisement is called a deemed prospectus. 

4. Red Herring Prospectus [section 32]:-

Section 32 of the Companies Act 2013 , states that "Red Herring" prospectus means a prospectus which doesn't have complete particulars on the price of the securities and the quantum of the securities offered for subscription . In other words, it is a first or preliminary prospectus that is submitted by a company with reference to public offering. It has most of the details with respect to the company's present operations but does not have the key information about the securities price or the quantum of shares. 

Conclusion 

In conclusion, A Prospectus means any invitation issued by the company to the public inviting to deposit their money with the company or to take shares or debentures of the company. Such an invitation can be in the form of a document or a notice, circular, advertisement etc. Section 26 states that every prospectus must be dated, and that date is deemed to be the date of publications of the prospectus. A prospectus should not contain any misstatement means any untrue or misleading statements and not omit to disclose any material fact. 


Frequently Asked Questions

Questions 1. What are the types of prospectus? 

According to Companies Act, 2013 there are four types of the prospectus that are ; Abridged prospectus, Deemed prospectus, Red Herring prospectus and Shelf prospectus. 

Question 2. What are the main elements of prospectus? 

The main elements of prospectus are ; an introduction of the company, information about securities that are being offered to the public for subscription , brief summary of the company's background and financial  information etc. 

Question 3. Who issues a prospectus? 

A prospectus is a legal document issued by the companies that are offering securities to the public for subscription or sale. 

Question 4. What are the contents of prospectus? 

Contents of prospectus includes the main objects of the company along with the names, description, occupations and addresses of directors ,legal secretary,managers ;number of shares subscribed ; the amount of minimum subscription; the number and classes of shares etc. 

Question 5. Why do company use prospectus? 

Company use prospectus to help the investors to get more information about securities and company background who interested in buying securities .