All About Prospectus In Company Law

A prospectus in company law is a legal document for raising funds after its incorporation. It is distributed to invite the general public and financial investors to join its business.

The prospectus provides comprehensive information about firms, their shares, and their debts. A prospectus also assists in educating potential investors about the risks associated with financing the business. These reports have details about the stock of company, its bonds, and the insurance.

What is a Prospectus in Company Law?

A prospectus is a legal disclosure document that provides information about an investment offering to the public, and it is required to be filed with the Securities and Exchange Commission (SEC) or local regulator. The prospectus contains information about the company, its management, financial statements, and other related information.

Importance Of Company Law Prospectus

The prospectus is one of the most important documents in the formation of a Public Corporation. It gives all the material information i.e., general, financial, and statutory.

An importance of prospectus in company law is issued either by or on behalf of a public company on its formation or subsequently on behalf of a person engaged in the formation of a public company.

What is Contents Of Prospectus?

The contents of a prospectus are mentioned below:

• General Information:

1. Address of the registered company office.

2. Details regarding the auditors, company secretary, bankers, underwriters, and other relevant employees with their names and address.

3. The important dates relating to an issue-opening and closing dates of a prospectus in Company Law.

4. Allotment letters and declared refunds within the agreed time.

5. A statement by the board of directors regarding the separate bank account in which the money raised from the issue shall be deposited. The board of directors also discloses how much amount is utilized.

6. Underwriting of the issue and its details.

7. Consent of auditors, directors, and bankers relating to the issue.

• Capital structure of the company:

1. Issued, subscribed, and paid-up capital

2. Size of the present issue.

• Terms of the Present issue:

1. Authority for the issue

2. Procedure for allotment and issue of securities.

3. Availability of prospectus and terms & mode of payment for the subscription of a prospectus in Company Law.

• Particulars of the issue:

1. Objects of the issue

2. Project cost

3. Purpose of requirements of funds, a summary of the project appraisal report

• Particulars relating to:

1. Risk involved in the project,

2. Gestation period of the project,

3. Progress made in the project,

4. Deadlines for completion of the project,

5. Any legal action was taken by the government.

• Subscription of the issue:

1. Minimum Subscription of the issue,

2. Appointment and remuneration details of the director,

3. Disclosures about promoters' contributions,

• Reports of Financial Statements

1. Balance sheet and Profit and loss

2. Profit and loss for each of the 5 financial years immediately preceding the financial year of the issue of a prospectus in Company Law including the such report of its subsidiaries,

3. Balance sheet on the last date to which accounts of the business were made.

• Mis-statement in Prospectus:

Declaration of compliance with the Act’s provisions and a statement that nothing in the prospectus conflicts with any act provision of The Securities Contracts (Regulation) Act, 1956 and Securities Board of India Act, 1992.

The prospectus meaning in Hindi is suggested to be made in the issue.

Features of Prospectus in Company Law

The features of the prospectus are:

• It is a document for every company procures its share capital required for carrying out its business;
• It is an invitation to the member of the public to offer to purchase/subscribe to shares of the company;
• The prospectus in Company Law is a public invitation to subscribe to the shares or debentures of the company;
• It includes any notice, circular, or advertisement inviting deposits from the public;
• All material facts must be disclosed and should not be hidden; it should not give false or untrue information.
• The prospectus is issued to bring the notice of the public that a new company has been formed;
• To preserve the record of terms and conditions of allotment for the invitation to the public for buying shares or debentures of the company.
• To secure the responsibility of directors for the statement in the prospectus.

When Does The Company Need To File A Prospectus?

A company to file a prospectus when the company is planning to make a public offering of securities, at first, it may issue following prospectus

Red Herring Prospectus –

It is a prospectus as specified under Article of the Companies Act,2013 at least three days before the subscription list or opening of the offer, this form of the prospectus must be filed with the registrar.

Shelf prospectus –

It is a prospectus issued by a bank, public financial institution, and firm, or for more than one issue of securities or classes of securities that are mentioned in the prospectus. When a shelf prospectus is issued, the issuer specifies the need to issue a separate prospectus for each offering issued; or, a prospectus in Company Law also offers or sells securities without having to issue a new prospectus. The section of the Companies Act, 2013 has given the provisions relating to shelf prospectus.

Abridged Prospectus –

It is a summary of a prospectus filed with the registrar of companies. It contains all the features of a prospectus. An abridged prospectus provides all the information of the prospectus in brief so that it should be easy, convenient, and quick for an investor to know all the useful information in summarised form.

The section of the Companies Act, 2013 also states that when any form for the purchase of securities of a company is issued, a prospectus in Company Law is must accompanied by an abridged prospectus.

Deemed Prospectus –

Under provisions of the Companies Act, 2013, a considered prospectus has been declared. When a corporation offers securities for sale to the public and allots or agrees to allot securities, the document is deemed a prospectus by which the offer is issued for sale to the public.

For any situation, the document is assumed to be a prospectus of a company, and all of the matters and obligations of a prospectus will be applied to it.

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