• Subham Patro

Prospectus In Company Law: What Are The Contents Of The Prospectus?

Updated: Sep 30


Matters stated in Prospectus according to Section 26 of Companies Act 2013
Matters to be stated in prospectus


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.



What are the Contents of Prospectus in Company Law?



The offer document is called a prospectus in case of a public issue and a letter of offer in case of a rights issue.


The offer document shall contain the information and statements specified in Part A of Schedule VI of Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018. The content of a prospectus under Companies Act 2013 should include :


1. Name of the company, its logo, date and place of incorporation, corporate identity number, telephone number, address of its registered and corporate offices, website address and e-mail address.


2. Nature, number and price of specified securities offered, type of issuance(book built or fixed price) and issue size.


3. Name of the promoter, details of the issuer or any of its promoters or directors being a wilful defaulter.


4. Clause on “General Risk”.