Prospectus In Company Law: What Are The Contents Of The Prospectus?
Updated: Sep 30, 2022
INTRODUCTION
A prospectus is a document issued by the company inviting the public and investors for the subscription of its securities. A prospectus also helps in informing the investors about the risk of investing in the company.
A Prospectus is required to be issued only after the incorporation of the company. These documents describe stocks, bonds and other types of securities offered by the company. Mutual fund companies also provide a prospectus to prospective clients, which includes a report of the money’s strategies, the manager’s background, the fund’s fee structure and a fund’s financial statements.
A prospectus is always accompanied by performance history and financial information of the company. The reason for accompanying such an information along with the prospectus is to make sure that, the investors are well aware of the company’s background and overall performance and the investors do not fall into the prey of investing in a bad company.
Definition of Prospectus in Company Law
Section 2(70) of the Act defines prospectus as, “A prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.”
Prospectus Example
In an IPO, the prospectus tells potential shareholders about the company’s plans and business model.
For insurance and investment fund customers, a prospectus lists out the objective of the product, inclusions, and exclusions, fees, etc.
For an ETF, a prospectus informs likely investors of the fund’s goals, history, portfolio, fees and costs, and other financial details.
Companies that are required to issue a prospectus
A public listed company who intends to offer shares or debentures can issue prospectus.
A private company is prohibited from inviting the public to subscribe to their shares and thus cannot issue a prospectus. However, a private company which has converted itself into a public company may issue a prospectus to offer shares to the public.