A prospectus is the mirror of the company. One can estimate the value of the company by seeing the prospectus of a company. Before issuing a share or investing in the company everyone looks at the prospectus of the company. The prospectus is a document issued by the company to invite offers from the public for subscription or purchase of any securities of a body corporate. There are various kinds of the prospectus which a company may issue.
Kinds of prospectus a company may issue are as follows:
1. Red herring prospectus
2. Abridged prospectus
3. Shelf prospectus and,
4. Deemed prospectus.
RED HERRING PROSPECTUS
A red herring prospectus is a preliminary or initial prospectus that does not include the information concerning the price of securities that are placed for pubic subscriptions. It is called red herring as the cover page of the prospectus is red indicating that the information in the prospectus is incomplete. A company that intends to make a public offering has to file a draft red herring prospectus with SEBI according to the guidelines. This filing of the prospectus is done by the merchant bankers which are authorized or approved by SEBI. Therefore, the companies hire such merchant bankers who assist and make this prospectus for the companies and also file them with SEBI as per the regulations.
Once all the above-stated guidelines are fulfilled then, SEBI reviews the draft and may suggest changes or modifications for it. The companies must adhere to the changes suggested by SEBI. After incorporating all the required modifications, the prospectus then qualifies to be a final red herring prospectus, which should be filed before the registrar of the company at least 3 days before the opening of the subscription offer to the public.
ABRIDGED PROSPECTUS
Provisions concerning abridged prospectus are mentioned in section 33 of the Companies Act of 2013. The abridged prospectus is simply a prospectus that contains a summary of the main prospectus, in case the main prospectus is very detailed. All the salient features of the main prospectus are contained in this prospectus. It simplifies the process for the investors to figure out the details of the company and the details of their offering in form of a summary through an abridged prospectus and saves their time.
According to section 2(1) of the Act “abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations on this behalf. The abridged prospectus contains all the important and materialistic information. No company will issue the share buying without the abridged prospectus attached to it so that investors can make a well-informed decision.
SHELF PROSPECTUS
According to section 32 of the Companies Act, a shelf prospectus has been referred to as a prospectus through which a company can tamper with the number of shares it wants to open up for a subscription by the public from time to time. This is preferred by a company that does not want to open all its shares or securities at a single point time but in parts.
For example, company A, which is a public listed company, wants to give 30000 shares up for a subscription by the public but it does not want to open all 30000 to the public, therefore it gives out an offer for 10,000 on 29th January 2019, and then another 10,000 shares on 2nd March 2019 and the remaining on 5th June 2019 without the issuance of a new prospectus for new offer every time. This allotment method can be allowed by SEBI for only for 12 months.
DEEMED PROSPECTUS
A deemed prospectus is discussed under section 25 of the companies act 2013. This provision is made for the companies which outsource the issue of a prospectus to escape the liability. However, the Companies act prevents such escape. A company may allow or agree to allot the shares or securities to an issue house, without there being an intention on the part of the company concerning direct issuance of shares or debentures to the public. This document, through which the issuance house may offer to issue the shares or debentures of that company to the public, may be deemed to be the prospectus of that company and therefore any liability attracted in the prospectus would be the liability of the company. This is mentioned clearly under section 25 (1) of the said act.
Thus, all these kinds of prospectus can be issued by companies. While issuing the prospectus a company needs to follow all the necessary guidelines as stated in the Companies Act and SEBI. If there are any misstatements made or any issue with the type of prospectus made by a company, then that could lead to legal consequences.
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.
