Kinds of Prospectus

Rajneesh Kumar Patel1

Dear friends today we will focus on various kinds of prospectus in this class.

1. Statement in lieu of prospectus

As we know that issuance of prospectus is a unique power of public listed companies, and it is
not a compulsion. Therefore, a public company may or may not issue prospectus, and if the
members of board of director of any company is of the view that they can arrange the required
capital by their own affords then they may decide not to issue any prospectus.

However, it is also true that if any time they want to raise capital from public they can issue
prospectus. Due to this power of a public company, it was provided under section 70 of the
Companies Act, 1956 that if any public company is not willing to issue prospectus, then at least
it should file a statement in lieu of prospectus to the office of Registrar of the Companies. 2 It
should also be noted that this was not mandatory for a private company, but when a private
company converts its nature to the public company, it must have to either file a prospectus if
earlier issued or it has to file a statement in lieu of prospectus.

2. Prospectus in the form of Advertisement

As we were discussing in the last class on this topic that there is no prearranged form of
prospectus and any document which invite public to purchase securities of the company, that
may be a prospectus, therefore even an advertisement may also be treated as prospectus, as it was
decided in Pramath Nath Sanyal v. Kali Kumar Dutt3.
It is interesting to note here that no doubt the above case was a very good decision but mere
declaration that advertisement shall be treated as prospectus will not meet the ends of justice, as
it did not provides the details about the issue required by the Companies Act, 2013. This gap has

1
Professor, Law School BHU.
2
A company having a share capital, which does not issue a prospectus on or with reference to its formation, or which has issued
such a prospectus but has not proceeded to allot any of the shares offered to the public for subscription, shall not allot any of its
shares or debentures unless at least three days before the first allotment of either shares or debentures, there has been delivered to
the Registrar for registration a statement in lieu of prospectus signed by every person who is named therein as a director or
proposed director of the company or by his agent authorised in writing, in the form and containing the particulars set out in Part I
of Schedule III and, in the cases mentioned in Part II of that Schedule, setting out the reports specified therein, and the said Parts
I and II shall have effect subject to the provisions contained in Part III of that Schedule.
3
AIR 1925 Cal.714.
been now fulfilled by adding section 30 under the Companies Act, 2013, which requires, that
when in any manner the advertisement of a prospectus is published, it is mandatory to specify the
contents of the memorandum of the company regarding the object, member’s liabilities, amount
of the company’s share capital, signatories and the number of shares subscribed by them and the
capital structure of the company.4

3. Abridged Prospectus

This is a new kind of prospectus and rather it comes into existence due to busy life of investors.
Actually it is a summary of a prospectus filed to the office of registrar before publication of the
main prospectus. Definition of the term Abridged Prospectus is given under section 2 (1) of the
Companies Act, 2013. As per this section, abridged prospectus means a memorandum containing
such salient features of a prospectus as may be specified by the Securities and Exchange Board
of India, by making regulations in this behalf, therefore, an abridged prospectus contains all the
necessary information of the prospectus in brief so that it should be convenient and quick for an
investor to know all the useful information in short.

The requirement to file this type of prospectus is given under section 33 of the Act, which
requires that, no form of application for the purchase of any of the securities of a company shall
be issued unless such form is accompanied by an abridged prospectus, provided that nothing in
this sub-section shall apply if it is shown that the form of application was issued in connection
with a bona fide invitation to a person to enter into an underwriting agreement with respect to
such securities; or in relation to securities which were not offered to the public. A copy of the
prospectus shall, on a request being made by any person before the closing of the subscription
list and the offer, be furnished to him. If a company makes any default in complying with the
provisions of this section, it shall be liable to a penalty of fifty thousand rupees for each default.

4. Red herring prospectus

It is also a new form of prospectus. Definition of this red herring prospectus is given under
explanation to the section 32, which provide that, for the purposes of this section, the expression
"red herring prospectus" means a prospectus which does not include complete particulars of the
quantum or price of the securities included therein.

As per section, 32 a company which is proposing to make an offer of securities may issue a red
herring prospectus prior to the issue of a prospectus. A company proposing to issue a red herring
prospectus under sub-section (1) shall file it with the Registrar at least three days prior to the
4
See section 30 of the Companies Act, 2013, which provides that where an advertisement of any prospectus of a
company is published in any manner, it shall be necessary to specify therein the contents of its memorandum as
regards the objects, the liability of members and the amount of share capital of the company, and the names of
the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure.
opening of the subscription list and the offer. Further, a red herring prospectus shall carry the
same obligations as are applicable to a prospectus and any variation between the red herring
prospectus and a prospectus shall be highlighted as variations in the prospectus. Upon the closing
of the offer of securities under this section, the prospectus stating therein the total capital raised,
whether by way of debt or share capital, and the closing price of the securities and any other
details as are not included in the red herring prospectus shall be filed with the Registrar and the
Securities and Exchange Board.

5. Shelf Prospectus

This is not a new prospectus and the provision regarding shelf prospectus is borrowed from 1956
Act. Though the definition of shelf prospectus is not written under this Act or even in previous
Act , but if can be understand as a prospectus that has been issued by any public financial
institution, company or bank for one or more issues of securities or class of securities as
mentioned in the prospectus. When a shelf prospectus is issued then the issuer does not need to
issue a separate prospectus for each offering he can offer or sell securities without issuing any
further prospectus.

The provisions related to shelf prospectus have been discussed under section 31 of the
Companies Act, 2013, which runs as under:

Any class or classes of companies, as the Securities and Exchange Board may provide by
regulations in this behalf, may file a shelf prospectus with the Registrar at the stage of the first
offer of securities included therein which shall indicate a period not exceeding one year as the
period of validity of such prospectus which shall commence from the date of opening of the first
offer of securities under that prospectus, and in respect of a second or subsequent offer of such
securities issued during the period of validity of that prospectus, no further prospectus is
required. A company filing a shelf prospectus shall be required to file an information
memorandum containing all material facts relating to new charges created, changes in the
financial position of the company as have occurred between the first offer of securities or the
previous offer of securities and the succeeding offer of securities and such other changes as may
be prescribed, with the Registrar within the prescribed time, prior to the issue of a second or
subsequent offer of securities under the shelf prospectus: Provided that where a company or any
other person has received applications for the allotment of securities along with advance
payments of subscription before the making of any such change, the company or other person
shall intimate the changes to such applicants and if they express a desire to withdraw their
application, the company or other person shall refund all the monies received as subscription
within fifteen days thereof.
 Where an information memorandum is filed, every time an offer of securities is made under sub-
section (2), such memorandum together with the shelf prospectus shall be deemed to be a
prospectus.

Therefore, there are two main characteristics of this shelf prospectus, first, it shall be valid for a
year and second, if any change occur during that year that changes must be informed by the
company to public by support of another document which is known as information
memorandum.

6. Deemed Prospectus: 

Sometimes any document of offer may not be issue directly as a prospectus but considering the
nature and effect of that offer the law applicable to the prospectus may apply on that offer
document. This type of incidence gives birth to the concept of deemed prospectus.
Section 25 of the companies Act, 2013 provides in this regard that, where a company allots or
agrees to allot any securities of the company with a view to all or any of those securities being
offered for sale to the public, any document by which the offer for sale to the public is made
shall, for all purposes, be deemed to be a prospectus issued by the company; and all enactments
and rules of law as to the contents of prospectus and as to liability in respect of mis-statements,
in and omissions from, prospectus, or otherwise relating to prospectus, shall apply with the
modifications specified in subsections (3) and (4) and shall have effect accordingly, as if the
securities had been offered to the public for subscription and as if persons accepting the offer in
respect of any securities were subscribers for those securities, but without prejudice to the
liability, if any, of the persons by whom the offer is made in respect of mis-statements contained
in the document or otherwise in respect thereof. (2) For the purposes of this Act, it shall, unless
the contrary is proved, be evidence that an allotment of, or an agreement to allot, securities was
made with a view to the securities being offered for sale to the public if it is shown— (a) that an
offer of the securities or of any of them for sale to the public was made within six months after
the allotment or agreement to allot; or (b) that at the date when the offer was made, the whole
consideration to be received by the company in respect of the securities had not been received by
it. (3) Section 26 as applied by this section shall have effect as if — (i) it required a prospectus to
state in addition to the matters required by that section to be stated in a prospectus— (a) the net
amount of the consideration received or to be received by the company in respect of the
securities to which the offer relates; and (b) the time and place at which the contract where under
the said securities have been or are to be allotted may be inspected; (ii) the persons making the
offer were persons named in a prospectus as directors of a company. (4) Where a person making
an offer to which this section relates is a company or a firm, it shall be sufficient if the document
referred to in sub-section (1) is signed on behalf of the company or firm by two directors of the
company or by not less than one-half of the partners in the firm, as the case may be.

Dear student for further example you may also go through to section 28 of the Act, which says
that where certain members of a company propose, in consultation with the Board of Directors to
offer, in accordance with the provisions of any law for the time being in force, whole or part of
their holding of shares to the public, they may do so in accordance with such procedure as may
be prescribed. Any document by which the offer of sale to the public is made shall, for all
purposes, be deemed to be a prospectus issued by the company and all laws and rules made there
under as to the contents of the prospectus and as to liability in respect of mis-statements in and
omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus
issued by the company. The members, whether individuals or bodies corporate or both, whose
shares are proposed to be offered to the public, shall collectively authorize the company, whose
shares are offered for sale to the public, to take all actions in respect of offer of sale for and on
their behalf and they shall reimburse the company all expenses incurred by it on this matter.

Thus it is clear from the above discussion that, prospectus is a document issued by a body
corporate which acts for inviting offers from the public for subscription or purchase of any
securities. Every public company is entitled to issue the prospectus for its shares or debentures.
Under Companies Act there are different kinds of prospectus which can be issue by the
companies depending upon the circumstance. An important change which comes between the
Act of 1956 and the present Act is that now even if a shareholder offered his own shares to sell
then in certain circumstances that offer may also be considered as prospectus.

***

*…. The class will continue with contents of prospectus.