Types of Prospectus Issued by a Company in India

The types of prospectus is an offer document issued by a public company that is used as an invitation to offer from the general public for the subscription of shares. The prospectus is a legally mandated document and needs to be registered with the Registrar of Companies (ROC). It is a lawful document having the information given by the securities and exchange commission in India (SEC) and issued as per the relevant provision of the Companies Act, 2013.

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

What are the Types of Prospectus as per the Companies Act, 2013?

The prospectus is an invitation to offer given by a public company for inviting the public to purchase company’s securities. The four types are as follows:

1. Shelf Prospectus –

The prospectus which is issued by a public financial institution or company or bank for one or more issues of securities or a class of securities as prescribed in the prospectus. When the issue of prospectus is, the issuer does not need to issue a separate prospectus for each offering. The company can offer or sell securities with the issued prospectus. As per the relevant provisions under the Companies act, 2013, the kind prospectus is issued at a time of the initial offer of the securities of company.

This is one of the types of prospectus where the information memorandum is filled by the company.  The issuing company has to specify a time limit regarding the validity of the said prospectus. The validity cannot exceed a year. It must be filled with the shelf prospectus in prior to the issue of subsequent offers.

2. Red Herring Prospectus –

This kind of prospectus does not include the complete information related to the quantum of the price of the securities issued by the company. A company may issue a red herring prospectus before the issue of the prospectus when it is proposing to make an offer of securities.

This is one of the types of prospectus which needs to be filled with the registrar at least three days before the opening of the offer. In case of any variation between a red herring and a prospectus then it must be showed as variations.

3. Abridged Prospectus –

This kind of prospectus is a summary filled out before the registrar of companies. It includes all the features of the prospectus. It also includes all the information in brief for making it fast and convenient for an investor to be able to read and understand every piece of information in short. As per the provision of the Companies Act, 2013 states when an issuing company of purchase of securities then it must be accompanied by a prospectus.

This is one of the types of prospectus containing all the useful and materialistic information so that the investor can take a rational decision and it also reduces the cost of public issues.

4. Deemed Prospectus –

As per the provision of the Companies Act, 2013 determines when a company is issuing an offer of securities to the public or allots or agrees to allot the securities then the document will be called as a deemed document. It is a kind of prospectus having all the provisions of content and liabilities and other purposes of a prospectus will be applicable to the same.

What is the Importance of Prospectus in Company Law?

The prospectus helps the potential investors to make a informed decision. The importance of types of prospectus is given with the help of the following points:

1. Invitation to Investment – It is a document to invite the public for investing in securities.

2. Company Information – It gives the details of the company’s working, mission, vision and financial information, etc. It helps to put the company on record as to the terms and issue and process of allotment.

3. Authentic document – It is a real and lawful document that investors can rely upon because it is filed with the SEC.

4. Identifies investment risk – The document must give an idea about the risks involved in the offer by giving details related to securities offered and the company’s financial information, etc. The types of prospectus must state the risk involved in the issue.

Mention the contents of prospectus in company law

The content of the prospectus for issuing and filing the prospectus of a public company. It needs to be properly signed and dated with all the necessary information and specify such reports on financial condition as may be given by the Securities and Exchange Board (SEC) in consultation with the Central government of India. The prospectus shall include all the following points as given below: -

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

2. The date of opening and closing of the said issue.

3. Statement of the Board of directors must be included in the types of prospectus about

• Separate bank A/cs in which receipts of issues are maintained.
• Details of utilization and non-utilization of its receipts of previous issue.

4. Consent of directors and company’s auditors and bankers to the said issue with expert opinion.

5. Mention the authority and details of authority for the issue in the resolution.

6. The process and scheduled time for the allotment and issue.

7. The capital structure of the company

8. The main object of the public offer must be given.

9. The risk factors with gestation period and if any pending legal action of any project is there.

10. Minimum subscription and what amount is payable on the premium must be given in the types of prospectus.

11. Details of directors with regard to their remuneration and an extent of interest in the company.

12. Financial information reports like Auditor’s report and Profit and loss statement.

You can also download the contents of the prospectus in Company Law Pdf from the google.

What is the Misstatement in Prospectus?

The document of prospectus is trusted by the public for purchasing securities from the public company. Any misstatement in the prospectus can be given in form of a punishment. A mis-statement in the document is occurred if an untrue or misleading statement is given and issued in the prospectus. Any kind of deletion and inclusion of a matter in the types of prospectus is misleading the general public is also a misstatement under the present companies act.

There are two types of liability for misstatement: -

1. Civil Liability

2. Criminal Liability

Prospectus Conclusion

The prospectus is a legal document issued only by a public company for raising the funds. The issue of the prospectus shall be with regard to the information given by the securities exchange and commission of India and as per the given Companies Act, 2013. However, the prospectus shall be true and fair, any misleading statement must not be published by the company. When there is any misstatement then the defaulter is punished in the specified punishments in the given Act. We have discussed the types of prospectus with contents and importance of the same.