prospectus- meaning, objectives, types, contents.

1. PROSPECTUS

2. MEANING:
• The prospectus is a legal document, which outlines the company’s financial securities for sale to the investors.
• Section 2(70) of Companies Act 2013 defines, “a prospectus as any document described or issued as a prospectus and includes red-hiring
prospectus or self-prospectus or any notice, circular, advertisement or other documents inviting offers from the public for subscription or
purchase of any securities of a body corporate.”

4. Objectives
• To inform the public about the forming of a new company.
• To arouse interest among public make investment in the company.
• To induce the investors to invest in its shares and debentures.
• To create confidence in the public about the company its directors
and its profitability.
• To preserve an authentic record of the terms on which the investors
have been invited and to make the directors responsible for the
statements in the prospectus.

5. Types of prospectus
• Red-herring prospectus
• A prospectus for stocks and bonds are issued in different stages – the first stage is the preliminary prospectus, which contains the
details of the business and proposed financial action. It is nicknamed as Red Herring. When a company decides to attract investors to
invest in their company, they use a prospectus named Red Herring Prospectus. It is basically a prospectus which is used in the public
issue to attract different investors. In this prospectus, the price and quantum are not mentioned or disclosed.
•
• Abridged prospectus
• Abridged Prospectus is the actual summary of a prospectus. It contains all the salient features of a prospectus. The original
prospectus that a company files to the exchange regulator is too large. The abridged prospectus contains the summary of the same
prospectus.
• Reading the entire prospectus may be too much time consuming for an investor. Instead, they go through the abridged prospectus,
which gives them the basic idea about the company.
• The abridged prospectus contains all the important and materialistic information. No company will issue the share buying from
without the abridged prospectus attached to it so that investors can take a well-informed decision.
•

6. • Shelf prospectus
• Shelf means ‘life’ or ‘validity’ of a prospectus. Only selected companies bring their shelf
prospectus. All companies are not eligible for designing a shelf prospectus. Normally
finance-based companies are eligible for bringing out their shelf prospectus.
• Shelf prospectus has validity with a maximum of one year. There are various companies
which frequently raise funds (ex. banks) for issuing loans.
• If any company submits their Shelf prospectus, they don’t have to file the prospectus
again and again
• while raising funds for that particular year.
•
• Deemed prospectus
• A prospectus that is deemed to have been made by the issuer, though it is actually
offered to the public by a third party or the issue house . The issuer saves the
underwriting expenses in selling its securities.

7. CONTENTS OF PROSPECTUS
• The revised format is effective from 1st November 1991.
• Part 1 of schedule II
• General Information
• Name and address of registered office of the company
• Date of opening of the issue
• Name and address of auditors and lead managers
• Capital Structure of the Company
• Authorised capital
• Issued capital
• Subscribed capital
• Paid up capital
• Terms of the present issue
• Right of the instrument holders
• How to apply, availability of forms, prospectus and mode of payment
• Any special tax benefits for company and its shareholders

8. • Particulars of the issue
• Objects
• Project cost
• Company, Management and Project
• History and main objects and present business of the company
• Subsidiary of the company if any
• Promoter and their background
• Infrastructure facilities for raw materials and utilities like water, electricity etc.
• Nature of products
• Approach to marketing
• Export possibilities and export obligations if any
• Future prospects – expected capacity utilization during the first three years from the
date of commencement of production and the expected year when the company
would be able to earn cash profits and net profits.

9. • Part II of schedule II
• General Information
• Consent of the directors, auditors, managers to issue, registrar to issue, bankers to the company, bankers to the issue and
experts
• Expert opinion if any
• Procedure and time schedule for allotment and issue of certificate
• Financial information
• A report by the auditors of the company with respect to-
• Profits and losses and assets and liabilities in accordance with sub-clause(2) (3) of this clause as the clause as
the case may require and
• The rates of dividend if any paid by the company in respect of each class of shares in the company for each
of the five financial years immediately preceding the issue of the prospectus
• Statutory and other information
• Minimum Subscription
• Expenses of the issue giving separately fee payable to: advisers, registrars to the issue, managers to the issue, trustee for the
debenture holders
• Underwriting commission and brokerage
• Previous public or right issue if any, date of allotment, date of refunds, date of listing on the stock exchange, closing date
• Commission or brokerage on previous issue
• Details of purchase of property

10. • Part III of schedule II
•
• Any report by part II of this schedule shall either
• Indicate by way of note any adjustments as respects the figures of any profits
or losses or assets and liabilities dealt with by the report which appear to the
persons making the report necessary
• Making those adjustments and indicate that adjustments have been made
• Any report by accountants required by part II of this schedule
• Shall be made by accountants qualified under this act for appointment as
auditors of the company