A prospectus is a legal document that a company issues when it offers securities for sale to the public. It is a formal disclosure document that provides detailed information about the companys securities, including its financial statements, business operations, and the purpose of the securities being offered. A prospectus is an invitation for the public to purchase stocks, shares, debentures, or other instruments. It is a document of great legal significance, and any fraud, misrepresentation, or omission in a prospectus is actionable under the Securities Act.
According to the Companies Act, 2013, a prospectus can include information such as advertisements, circulars, or notices among other legal documents inviting the public for the offering. The prospectus should be issued only for the purchase of a companys securities, and it should be issued by the company or an institution on behalf of the company and made available to the public. The company must file the prospectus with the regulator whenever it issues it.
There are four types of prospectuses under the Companies Act, 2013, including:
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Red Herring Prospectus: A red herring prospectus is a preliminary prospectus that does not have details of either the price or the number of shares being offered.
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Shelf Prospectus: A shelf prospectus is a prospectus that allows a company to offer securities to the public without filing a new prospectus every time.
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Deemed Prospectus: A document will be deemed to be a prospectus if the company agrees to allot or offer securities to the public.
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Information Memorandum: An information memorandum is a document that contains information about the company and its securities, but it is not a prospectus.
In conclusion, a prospectus is an essential document that a company has to issue when it offers securities for sale to the public. It provides detailed information about the companys securities, including its financial statements, business operations, and the purpose of the securities being offered.
