Types of Prospectus under Company Law

The Companies Act 2013 is the governing legislation for companies in India and provides regulations for various aspects of company operations, including public offers of securities. When a company plans to issue securities to the public, it needs to prepare and file a prospectus with the Registrar of Companies (ROC). 

The Companies Act 2013 recognises several types of prospectus, each with its own requirements and usage. In this article, we will explore the different types of prospectus under the Companies Act 2013 in India, along with their headings and sub-headings, and mention the relevant provisions.

What is a Prospectus?

A prospectus is a legal document that contains important information about a company and its securities, which are being offered to the public for subscription or purchase. It serves as a key source of information for potential investors to make informed investment decisions. 

A prospectus provides detailed information about the company’s financials, business operations, management, risks, and other relevant information that investors need to know before investing in the company’s securities.

In the context of company law, a prospectus is regulated by the Companies Act, which sets out the requirements and guidelines for preparing and issuing prospectuses. The Companies Act lays down the mandatory disclosures that must be made in a prospectus to ensure transparency and investor protection. A prospectus must be registered with the regulatory authority before it can be used for offering securities to the public.

Prospectuses are commonly used by companies when they intend to raise funds through public offerings, such as initial public offerings (IPOs), follow-on public offerings (FPOs), and rights issues. It is a crucial document that helps potential investors assess the risks and rewards associated with investing in a company’s securities.

Types of Prospectus in Company Law

Prospectuses can come in various forms, such as a full prospectus, red herring prospectus, shelf prospectus, abridged prospectus, or deemed prospectus, depending on the type of offering and regulatory requirements. Each type of prospectus has its own specific features, usage, and regulatory provisions that companies must adhere to while preparing and filing them.

Red Herring Prospectus (RHP)

The Red Herring Prospectus (RHP) is a preliminary prospectus or offer document used by companies to make an initial public offering (IPO) or a follow-on public offer (FPO) of securities. The RHP contains all the relevant information about the company’s shares or debentures, except for the final offer price. It is filed with the ROC and circulated to potential investors for their consideration. The relevant provisions for RHP under the Companies Act 2013 include:

• Section 26: This section outlines the requirements for the contents of a prospectus, including the information to be included in the RHP.
• Section 32: This section specifies the procedure for filing the prospectus with the ROC, including the requirement to file the RHP before the opening of the subscription list.
• Section 31: This section mandates the inclusion of a statement in the RHP that the offer is being made through a prospectus and that investors should read the prospectus before making an investment decision.

Shelf Prospectus

A Shelf Prospectus is a prospectus that is filed by a company for multiple issues of securities within a period of one year from the date of its approval by the ROC. It allows the company to make multiple public offers of its securities during the validity period of the Shelf Prospectus without filing a fresh prospectus for each offer. The relevant provisions for Shelf Prospectus under the Companies Act 2013 include:

• Section 31A: This section outlines the requirements for filing a Shelf Prospectus, including the conditions for its validity, the period of validity, and the amendments to be made to the prospectus during its validity period.
• Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014: This rule provides further details on the contents of a Shelf Prospectus, including the information to be included in the prospectus and the procedures for filing and updating the Shelf Prospectus.

Abridged Prospectus

An Abridged Prospectus is a shorter version of the prospectus that contains only the salient features of the full prospectus. It is intended to provide a concise summary of the key information about the company’s securities and the offer to potential investors. The relevant provisions for Abridged Prospectus under the Companies Act 2013 include:

Rule 3 of the Companies (Prospectus and Allotment of Securities) Rules, 2014: This rule outlines the requirements for the contents of an Abridged Prospectus, including the information to be included in the prospectus and the procedures for filing and circulation of the Abridged Prospectus.

Deemed Prospectus

A Deemed Prospectus refers to any document that fulfils the characteristics of a prospectus and invites subscription or offer for securities of a company. It includes documents like advertisements, pamphlets, circulars, or any other communication that offers securities to the public for subscription or purchase. Such documents are deemed to be prospectuses and are subject to the same regulatory requirements as a regular prospectus. The relevant provisions for Deemed Prospectus under the Companies Act 2013 include:

• Section 2(70) and Section 2(71): These sections define the term “prospectus” and “deemed prospectus” respectively, and outline the broad scope of documents that may be considered as a deemed prospectus.
• Section 26 and Section 32: These sections, as mentioned earlier, also apply to deemed prospectuses, requiring them to comply with the same requirements for contents and filing as regular prospectuses.

Conclusion

As per the Companies Act 2013 in India, companies have to follow specific guidelines and requirements when preparing and filing prospectuses for public offers of securities. The different types of prospectus, including red herring prospectus, shelf prospectus, abridged prospectus, and deemed prospectus, each have their own distinct features, usage, and regulatory provisions. 

It is crucial for companies to understand the requirements and comply with the relevant provisions while preparing and filing prospectuses to ensure compliance with the law and provide accurate information to potential investors.