A 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. Therefore, prospectus acts as an invitation of offer from the side of the company to the general public either for subscription or purchase of any securities of the body corporate. This invitation to offer made can be in form of notice, advertisement, circular, etc.
Prospectus acts as the mirror of the company. It contains all the details of the company, such details of the memorandum of association, the financial statements of the company, capital of the company, etc. All these details are mandatory to be disclosed to the general public. Therefore, the prospectus should be drafted in a manner that leaves no grey area for the investor and provides a clear picture of where the company stands in the market.
The method of raising funds through a prospectus is mentioned under section 26 of the company’s act 2013, which clearly states the contents which a prospectus must-have. Further under section 24 of the same act, powers of SEBI (Security and Exchange Board of India) concerning companies issuing prospectus is mentioned. The section gives jurisdiction to SEBI over both, i.e. the listed companies which already issue prospectus and also the companies which intend to issue the prospectus. A prospectus has to be registered, if in case it is not registered, the consequences would be that firstly, the document would be invalid in the eyes of law, and secondly, it may also attract criminal liabilities as mentioned under the Company Act of 2013.
For a public company, the prospectus is one of the important booklets which explain the company comprehensively about its shares and debentures, whereas the private company doesn't need to issue the prospectus. There are different types of the prospectus:
A prospectus is a very essential document that clearly represents the face of the company and therefore if there is any misstatement or misrepresentation in the prospectus which does not provide the investors the true information about the company, then the company could be held liable. The liability arises when an investor invests in the shares or the debentures of a company, relying on the statements made by the company in the prospectus, and faces loss or damages, because the statement so made was untrue. However, a future statement made by a company or a future representation made by a company that something will happen in the future is not a representation of a fact or material information that could mislead the investor, and therefore such statements do no invoke the liability of misstatement in the prospectus. A company would be liable for misstatement in the prospectus when the information provided in the prospectus is a fact or material information, which if untrue, could cause loss to an investor. Therefore a company must frame a prospectus in a manner that does not mislead any of the investors. All the statements mentioned in the prospectus must be true, otherwise, the company could be held liable under civil as well as criminal laws.
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.
