According to section 2(36) company’s prospectus is an official document providing the complete details for the investments the company offers for sale to the general public.

A prospectus can only be issued for the purchase of the company’s securities. There are 4 major types of prospectus, which includes,

1. Deemed prospectus
2. Abridged prospectus
3. Red-herring prospectus
4. Shelf prospectus.

Contents of a prospectus

1. Every prospectus has to be dated and signed.
2. Reports for the purpose of financial information has to be set out
3. Reports for the profits and losses of each financial year.
4. Statement to the compliance with the provisions of the act.
5. Filing of copy with the registrar. A copy must be issued with the registrar and registered, wrt the prospectus.
6. Statement of the independent expert. Consent in writing of that expert must be obtained and this fact must be stated in the prospectus. The statement cannot be made unless he/she is not engaged in the process of formation or promotion of the company.
7. The prospectus must be issued in 90 days of its registration.
8. Every prospectus must disclose matters related to the objects of the company, details as to shares, managerial personnel, minimum subscription, underwriting, preliminary expenses, etc.
9. Lastly, the “golden rule” as to the statements in the prospectus must be observed .ie, the public is at the mercy of company promoters. Everything stated in the prospectus must be accurate and scrupulous.

Remedies for misstatement in a prospectus.

• Damage by deceit: those who issue a prospectus with fraudulent statements are liable to pay the person who bought shares in the faith of the prospectus.

In Derry v. Peek, the prospectus of a company stated that they used steam power to move its trams, but it hadn’t yet been authorized. They weren’t held liable for fraud, as it wasn’t a false statement.

It was held in the case of Houldsworth v. city of Glasglow bank, that the contract of allotment must first be rescinded.

• Compensation under section 62: any person who was issued as the director/promoter/ authorised the issue of the prospectus, every expert referred, will be liable, jointly and severally .they are liable for every untrue statement. Even if the representation was false, the directors cannot escape the liability even though if it was bonafide, however, they can use the following defences against it.
  1. Withdrawal of consent
  2. Issue without knowledge
  3. Ignorance of untrue statements
  4. The reasonable ground of belief: in the case of adam v. thrift, it was held that since the director had very reasonable grounds to believe that the prospectus was true, he wasn’t held liable.
  5. Statement of an expert.
• Recession for misrepresentation: The shareholder can sue the company for the recession of the contract, further the contract is canceled with the share paid back to the shareholder. In the case of v. kylsant, the lord kylsant was prosecuted for issuing a prospectus with untrue statements in it. This was also held similarly in Aaron reefs v. twis, a contrary argument was held in the case of shiroman sugar mills ltd v. debi Prasad.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.