Types of Prospectus in Company Law & It’s Significant

Types of prospectus in company law are of four types namely Shelf prospectus, Red herring prospectus, Abridged prospectus, and Deemed prospectus.

Let’s first understand the meaning of prospectus. A prospectus is a document given by the company inviting the general public and financial investors for the subscriptions of any securities of a public company.

It is a document containing the information as prescribed by the securities and exchange commission in India and issued as per the provision mentioned in the company’s act, 2013.

According to the Companies Act, 2013, the definition of prospectus is any circular, advertisement, or another document that invites public offer for the subscription or purchase of any securities. We shall now discuss the four types of the prospectus in detail covered under the prescribed section of the Companies Act, 2013.

What are the types of prospectus in Company Law 2013?

Prospectus is an offer document issued by a public company for inviting the general public for purchase of the securities. The types of prospectus are as follows :

1. Shelf prospectus –

The prospectus shelf is issued by any public financial institution, company, or bank for one or more issues of securities or a class of securities as mentioned in the prospectus. When the shelf prospectus is issued, the issuer does not need to issue a separate prospectus for each offering. He can offer or sell securities with the same prospectus.

The provisions under the Companies act, 2013, a shelf prospectus is issued at the time of the first offer of the company’s securities. The company issuing the prospectus has to give a time limit for the validity of this prospectus. 

The validity cannot exceed a year. This is one of the types of prospectus in company law in which an information memorandum is filled by the company.  It should be filled along with the shelf prospectus before the issue of subsequent offers of securities.

2. Red herring prospectus –

It is a prospectus that does not consist the complete information about the quantum of the price of the securities issued by the company. A company may issue a red herring prospectus prior to the issue of the prospectus when it is proposing to make an offer of securities.

When there is any variation between a red herring prospectus and a prospectus then it must be highlighted as variations. This types of prospectus in company law need to be filled with the registrar at least three days before the opening of the offer.

3. Abridged prospectus –

It is a summary of a prospectus filled out before the registrar. It contains all the features of the prospectus. It contains all the information in brief for making it quick and convenient for an investor to read and understand all the information in short.

The provision of the Companies Act, 2013 also states that when a company is issuing a purchase of securities, it must be accompanied by an abridged prospectus.

It contains all the useful and materialistic information so that the investor can take a rational decision and it also reduces the cost of public issues. The types of prospectus in company law PPT gives a better representation of the features of a prospectus.

4. Deemed Prospectus –

The provision of the Companies Act, 2013 provides that when any company is going to offer securities to the public, allots or agrees to allot securities, the document will be considered as a deemed prospectus. 

The document is deemed to be a prospectus of a company for all the provision of content and liabilities and all purposes of a prospectus will be applied to it.

What is Importance of Prospectus in Company Law?

The prospectus is the legal document containing detailed information about the company. It is a form of invitation to the public for subscribing to the shares or debentures of the company. 

There are different types of prospectus in company law that can be issued by the company. The prospectus helps the investors to make a well-informed decision.

Whenever the company issues the prospectus, it must file it with the Registrar of Companies. It must include the details of the company’s financial statements.

1. To invite the public for the issue

2. To put the company on record with regard to the terms and issue and allotment process.

What are the contents of prospectus?

The content of prospectus for filing and issuing the prospectus of a public company. It must be signed and dated and contain all the necessary information and set out such reports on financial information as may be specified by the Securities and Exchange Board of India (SEBI) in consultation with the Central government. The types of prospectus in company law should include all the following points: -

1. Name and registered office address, company secretary, legal advisor, bankers, trustees, etc.

2. Opening and closing date of the issue.

3. Statement of the Board of directors about

• Separate bank accounts where receipts of issues are to be maintained.
• Utilization and non-utilization details of receipts of previous issues.

4. Consent of directors, auditors, and bankers to the issue and opinion of experts.

5. Authority for the issue and details of the resolution passed for it.

6. Procedure and time scheduled for the allotment and issue of securities.

7. The capital structure of the company

8. The main objective of a public offer should be mentioned in all types of prospectus in company law.

9. Risk factors, gestation period, and any pending legal action of the project.

10. Minimum subscription and what amount is payable on the premium.

11. Details of directors regarding remuneration and the extent of their interest in the company.

12. Reports for financial information such as Auditor’s report, Profit and loss account, and business and transaction reports.

You can download the contents of the prospectus in Company Law Pdf from the web browser.

What is the legal requirement for issuing the prospectus?

The prospectus legal requirement are as follows: -

1. Compliance with SEBI regulations-

The rules and regulations as amended by the SEBI regarding the capital issue to the public should be compiled for the proposed issue of securities (shares or debentures) to the public. A statement should be made to this effect in the prospectus.

2. Registration-

A copy of the prospectus, with the date, and signed by all the board of directors should be registered with the registrar of companies. This fact must be stated in the prospectus. The prospectus must be issued within 90 days from the date on which the copy was delivered to the registrar.

3. Terms of prospectus not to be varied or changed after the issue

4. Application form must accompany an abridged prospectus.

The Types of prospectus in company law must follow the legal requirements.

What is the Misstatement in Prospectus?

The prospectus is trusted by the general public for purchasing securities from the company. Any misstatement by the prospectus can result into punishment. 

A misstatement in the prospectus occurs when an untrue or misleading statement is included and issued in the prospectus. Any deletion and inclusion of any matter which misleads the public is also a misstatement under the companies act.

There are two types of liability for misstatement:-

1. Civil Liability

2. Criminal Liability

Bring To The Closure...

The prospectus is a very crucial document of a company. The issuance of the prospectus must be with regard to the information prescribed by the securities exchange and commission of India and as per the Companies Act, 2013. 

We have discussed the types of prospectus in company law in detail. However, the prospectus must be true and correct in nature, any misleading statement should not be published by the company. 

If there is a misstatement the defaulter will be punished as per the given punishments in the Act.