KNC501/KNC601 Constitution of India, Law and Engineering

Chapter 17: Sole Traders and Partnership

Unit 1

Unit 2

Unit 3

Unit 4

Unit 5

Appendix

Prospectus:

A company’s prospectus is a formal legal document designed to provide information and full details about an investment offering for sale to the public. Companies are required to file the documents with the Securities and Exchange Commission (SEC). The prospectus documents must be made available to a prospective public investor prior to purchase. Investors are encouraged to read and understand the terms of the offering before making a purchase decision.

A prospectus will include the following information at a minimum:

  • A brief summary of the company’s background and financial information
  • The name of the company issuing the stock
  • The number of shares
  • Type of securities being offered
  • Whether an offering is public or private
  • Names of the company’s principals
  • Names of the banks or financial companies performing the underwriting

Content of Prospectus:

The prospectus contents are specified in the Companies Act. The prospectus must touch over the following content points:

  1. Details of the company, such as name, registered office address, and objects
  2. Details of signatories to the Memorandum and their shareholding particulars
  3. Details of the directors
  4. Details of shares offered and the class of the issue as well as voting rights
  5. Minimum subscription amount
  6. The amount payable on application, on allotment, and on further calls
  7. Underwriters of the issue
  8. Auditors of the company
  9. Audited reports regarded profit and losses of the company

Types of Prospectus:

According to Companies Act 2013, there are four types of prospectus.

Deemed Prospectus

Deemed prospectus has mentioned under Companies Act, 2013 Section 25 (1). 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. Any document which offers the sale of securities to the public is deemed to be a prospectus by implication of law.

Red Herring Prospectus

Red herring prospectus does not contain all information about the prices of securities offered and the number of securities to be issued. According to the act, the firm should issue this prospectus to the registrar at least three before the opening of the offer and subscription list.

Shelf Prospectus

Shelf prospectus is stated under section 31 of the Companies Act, 2013. 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.

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.

Importance of a Prospectus:

A prospectus is a document that companies and others file with the Securities and Exchange Commission when they are offering new shares of a security to the public. One of the most common reasons for issuing a prospectus is when a company is making an initial public offering, putting shares of stock up for sale for the first time. Mutual funds issue a prospectus at regular intervals because they routinely make new shares available.

Author – Dilip Kumar Rawat

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