Commercial Laws 2021 Company Law
PROSPECTUS
Prospectus is a document issued by a public company to invite general public to invest in the
company. Prospectus refers to an information booklet or offer document on the basis of which an
investor invests in the securities of an issuer company.
Section 2(70) of the Companies Act, 2013 defines a prospectus:
‘prospectus’ means any document described or issued as a prospectus and includes a red
herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or
any notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of body corporate
According to the companies act 2013, there are four types of the prospectus:
1. Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient
features of the prospectus as specified by SEBI. This type of prospectus includes all the
information in brief, which gives a summary to the investor to make further decisions. A
company cannot issue an application form for the purchase of securities unless an
abridged prospectus accompanies such a form.
2. Deemed Prospectus (Section 25 (1)) - Any document which offers the sale of securities
to the public is deemed to be a prospectus by implication of law. When a company
allows or agrees to allot any securities of the company, the document is considered as a
deemed prospectus via which the offer is made to investors.
3. Shelf prospectus (Section 31) - Shelf prospectus is issued when a company or any public
financial institution offers one or more securities to the public. A company shall provide
a validity period of the prospectus, which should not be more than one year. The validity
period starts with the commencement of the first offer. There is no need for a
prospectus on further offers. The organization must provide an information
memorandum when filing the shelf prospectus.
4. Red Herring Prospectus (Section 32) - It is a prospectus which does not have details of
either price or number of shares being offered, or the amount of issue. This means that
in case price is not disclosed, the number of shares and the upper and lower price bands
are disclosed.
YG LAW 1
Commercial Laws 2021 Company Law
Golden rule of Prospectus
The ‘Golden Rule’ for framing of a prospectus given by Justice Kindersley in New Brunswick &
Canada Rly. & Land Co. v. Muggeridge (1860). Basically, this golden rule says that whatever
information comes from the company to the public, through the medium of prospectus, it must be
true fair and accurate because when a company issues a prospectus to attract the general public to
purchase its shares, People rely on that information to invest in the shares of the issuing company
so the prospectus should be true in a strict sense
Contents of prospectus
1. Registered company office address.
2. Company secretary, auditors, bankers, underwriters, etc., their respective names and
address.
3. Opening and closing dates of the issue.
4. Allotment letters and refunds declaration within the prescribed time.
5. A statement by the board of directors about the separate bank account where all monies
received out of shares issued are to be transferred.
6. Underwriting of the issue their details.
7. Directors, auditors, bankers Consent to the issue, expert’s opinion if any.
8. The authority for the issue and the details of the resolution passed thereof.
9. Procedure and time schedule for allotment and issue of securities.
10. The Capital structure of the company with a comprehensive outlook.
11. Main objects and location of the present business of the company.
12. Public offer and terms of the present issue and its objective.
13. Minimum subscription, amount payable by way of premium, issue of shares otherwise than
on cash.
14. Appointment and remuneration details of the director
15. Sources of promoter’s contribution.
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