The prospectus is a legal document to be sought by market participants and investors, outlining a financial product's characteristics, prospects, and promise. The regulation mandates it to be supplied to prospective customers. The prospectus tells prospective shareholders in an IPO about the intentions and business model of the company. The business issues a prospectus with the aim to raise capital. Because of the prospectus, investors make a well-informed decision to include all the relevant details about the shares that are offered for sale to the public.

The corporation must file it with the regulator once the firm issues the prospectus. The prospectus contains relevant information, financial statements, and details of the company's operations. There are four types of prospectus, according to the Companies Act 2013.

A prospectus is defined under section 2(70) of the Companies Act, 2013. This includes any notice, circular, advertisement, or other documents that act as an invitation to public offerings. Such an invitation to bid should be for the purchase of any of the company's securities. A prospectus is also known as a shelf prospectus and a red herring prospectus. The essential conditions for a prospectus are that it should invite public share or debenture subscription, or invite deposits. This invitation should be made to the public, it should be made by the company, or on its behalf, and shares, debentures, or such other instruments should be covered by the invitation. 

The types of prospectuses are deemed prospectus, abridged prospectus, red herring prospectus, and shelf prospectus.

Deemed Prospectus

Section 25(1) defines deemed prospectus. If a company allows or agrees to allocate any of the company's securities, the document is considered a prospectus through which the offer is made to investors. By law, any document that offers the sale of securities to the public is considered a prospectus. 

Abridged Prospectus

A summary of a prospectus filed before the registrar is the abridged prospectus. It contains all the characteristics of a prospectus. An abridged prospectus contains all the prospectus information in brief, so that all the useful information, in short, should be convenient and quick for an investor to know. Section 33(1) of the Companies Act, 2013 also states that it must be accompanied by an abridged prospectus when any form is issued for the purchase of a company's securities.

It contains all the useful and materialistic information so that the investor can make a rational decision and because it is a short form of a prospectus, it also reduces the cost of public issuance of the capital.

Red Herring Prospectus

The Red herring prospectus is the prospectus that lacks the complete details of the price of the securities' quantity. Prior to the issue of the prospectus, a company may issue a red herring prospectus when it proposes to offer securities. It is necessary to file this type of prospectus with the registrar at least three days before the opening of the subscription list or the offer. The obligations that a red herring prospectus carries are the same as a prospectus. If there is any difference between a red herring prospectus and a prospectus, then it should be highlighted as variations in the prospectus. The prospectus has to state the total capital raised either by debt or share capital when the offer of securities closes. It has to state the closing price of the securities as well. It is necessary to register any other details that have not been included in the prospectus with the registrar and SEBI. Under Section 60B(7), the applicant or subscriber is entitled to withdraw the request for any intimation of variation within 7 days of such an intimation, and the withdrawal should be communicated in writing.

Shelf Prospectus

A shelf prospectus, as stated in the prospectus, can be defined as a prospectus issued by any public financial institution, company, or bank for one or more securities issues or class of securities. When a shelf prospectus is issued, for each offer that it can offer or sell securities without issuing any further prospectus, the issuer does not need to issue a separate prospectus. Under section 31 of the Companies Act, 2013, the provisions relating to the shelf prospectus have been discussed. The regulations shall be provided by the Securities and Exchange Board of India for any class or class of undertakings which may, at the stage of the first offer of securities to the registrar, file a shelf prospectus. The period of validity of the prospectus is prescribed by the prospectus and should not exceed one year. This period shall begin on the date of the opening of the first offer of securities. No separate prospectus is required for any second or further offer. A business is required to file an information memorandum along with it when filing for a shelf prospectus.

In conclusion, a prospectus is a formal and legal document issued by a corporate entity that acts to invite public offers to subscribe to or buy any securities. Each public company has the right to issue a prospectus in respect of its shares or debentures. But, for a private company, the same is not required. Thus, for any public company, a prospectus plays an important role and must be subject to the provisions laid down in the Companies Act 2013.

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. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.