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The word ‘company’ is derived from the Latin word Com Panis, Com means ‘With or together’ and Panis means ‘Bread’ and it originally referred to an association of persons who took their meals together. In the leisurely past, merchants took advantage of festive gatherings, to discuss business matters. In popular parlance, a company denotes an association of like-minded persons formed for the purpose of carrying on some business or undertaking. In the legal sense, a company is an association of both natural and artificial persons and is incorporated under the existing law of a country. In terms of the Companies Act, 2013 a “company” means a company incorporated under this Act or under any previous company law Section 2 (68). In common law, a company is a “legal person” or “legal entity” separate from, and capable of surviving beyond the lives of its members.

A company’s prospectus is a formal legal document designed to provide information and full details about an investment offering for sale to the public. Companies are required to file the documents with the Securities and Exchange Commission (SEC). The prospectus documents must be made available to a prospective public investor prior to purchasing. Investors are encouraged to read and understand the terms of the offering before making a purchase decision.[1]

A Prospectus is an invitation issued to the public to offer for purchase/subscribe shares or debentures of the company. In other words, any advertisement offering shares or debentures of the company Private limited companies are strictly prohibited from issuing a prospectus and they cannot invite the public to subscribe to their shares. A prospectus can only be issued by public limited institutions. Making it an open invitation prolonged to the public at large. Section 2(70) of the Companies Act 2013 defines Prospectus as “any document issued for advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate”.[2]


The term Prospectus is characterized as “any report portrayed or given as a plan and incorporates a red-hearing outline or rack outline or any notification, roundabout, commercial or other record welcoming proposals from the general population for membership or acquisition of any protections of a body corporate”. It is an authoritative archive that is needed to record with the Securities and Exchange Commission (SEC), which gives insights concerning the speculation to general society. The outline contains point-by-point data of the Board of Directors, Company Secretary, organization’s executives, capital construction, monetary execution, ongoing ventures of an organization, and other related data.[3]


  • Each open recorded organization who means to offer offers or debentures of the organization to general society.
  • Each privately owned business who stops to be a privately owned business and convert into a public organization and itends to offer offers or debentures of the organization to the general population.[4]


Organization plan archives have become progressively open with the coming of the web. Most organizations have a corporate site with a segment named Investor Relations that ought to have accessible a wide scope of organization documentation, including quarterly and yearly reports. Numerous speculation sites may likewise offer connections straightforwardly to an organization’s or alternately asset’s plan records.

The planned archive is given to advise financial backers regarding the potential dangers implied with putting resources into a specific stock or shared asset. The data are given in the plan additionally fills in as a type of assurance for the responsible organization against any cases that data was not completely uncovered or itemized preceding the financial backer placing cash into speculation.[5]

Organizations that wish to make stock or bonds available for purchase to the public should record an outline as a feature of the enlistment cycle with the SEC. Organizations should record a starter and last outline. Notwithstanding, the SEC has explicit rules with respect to what’s recorded in an outline for different protections


There are four types of prospectus such as:

  1. Red Herring Prospectus
  2. Shelf Prospectus
  3. Abridged prospectus
  4. Deemed Prospectus
  • Red Herring Prospectus:

Indicated under Art 31 of the Companies Act 2013 a distraction outline is given preceding the plan when an organization is proposing to make a deal.

It will record it with the Registrar no less than three days preceding the kickoff of the membership list and the proposition. A distraction plan will convey similar commitments as are pertinent to an outline and any variety between the distraction outline and a plan will be featured as varieties in the plan.

  • Shelf Prospectus:

An outline that has been given by any open monetary foundation, organization, or bank for at least one issue of protection or class of protections as referenced in the plan is known as the Shelf outline. At the point when a rack plan is given then the guarantor doesn’t have to give a different outline for each offering he can offer or sell protections without giving any further plan.

The arrangements connected with the rack outline have been talked about under area 31 of the Companies Act, 2013

  • Abridged prospectus:

A summary of a prospectus documented before the recorder. It contains every one of the highlights of an prospectus known as Abridged plan. An abbreviated plan contains all the data of the outline in a word with the goal that it ought to be advantageous and speedy for a financial backer to know all the valuable data in short. Section33(1) of the Companies Act, 2013 likewise expresses that when any structure for the acquisition of protections of an organization is given, it should be joined by an abridged prospectus

  • Deemed Prospectus:

A deemed prospectus has been stated under section 25(1) of the Companies Act, 2013. A document will be considered as a deemed prospectus through which the offer is made to the public for sale when any company offers securities for sale to the public, allots, or agrees to allot securities. The document is deemed to be a prospectus of a company for all purposes and all the provision of content and liabilities of a prospectus will be applied upon it.

In the case of SEBI v. Kunnamkulam Paper Mills Ltd., it was held by the court that where a rights issue is made to the existing members with a right to renounce in the favour of others, it becomes a deemed prospectus if the number of such others exceeds fifty.[6]


  • To inform the public that a new company has been formed.
  • To maintain an authentic record of the terms and allotment on which the public have been invited to buy its shares or debentures.
  • To know the investment strategies and objective of the company

To make the directors of the company accept responsibility for the statements in the prospectus


The Prospectus has been given to people in general on the loose, so the inquiry emerges that the outline is whether an overall proposal to the general population? No, an outline is anything but a deal yet only it is a challenge to propose as per the Indian Contract Act. The outline is a developed archive that will be given to general society as a greeting for the membership of offers.

At the point when the new organization is fused, they issue an outline through which general society becomes acquainted with the presence of the Company. The organization attempts to persuade the public that they offer the most obvious opportunity to them for their venture. On the off chance that the general population is persuaded then they give a proposal through the application for the acquisition of offers and debentures.[7]

through the application for the purchase of shares and debentures.

Prospectus — invitation of offer

Application for purchase of shares — Offer

Allotment of Shares — Acceptance

After acceptance, the contract is binding to the Companies and the shareholders.

A Company gets 120 days for this entire cycle after the outline was given. In any case, assuming that the organization neglects to do as such for example get a base membership from general society with a predetermined period, then, at that point, the sum they got from general society is gotten back to them. Likewise, the organization didn’t get the “Authentication of Commencement of Business” on the grounds that people, in general, don’t depend upon or are inspired by this organization.[8]


Whether a television advertisement and visual clips which give all the required details of the company and also give the information regarding new shares and debentures are termed as Prospectus?

No, the Prospectus shall not be oral. According to Section 25 of the Companies Act, the Prospectus must be in writing because it is a document.


There are some requirements that a company has to comply with before issuing it. Those are:-

  • Material matters should be disclosed.
  • Moreover it must bedated.
  • Company must file a duly signed copy of the prospectus to Registrar of companies for     .             its registration.
  • Company shall also file this with various agencies such as SEBI, Stock exchanges  and       m           other  agencies.
  • SEBI examines the draft of Prospectus to ensure disclosures and compliances.[9]


The contents of the prospectus have been specified in Schedule II of the Companies Act. The important contents in the prospectus include the following.

The contents of the prospectus have been specified in Schedule II of the Companies Act. The important contents in the prospectus include the following.

  1. Name and address of the company
  2. Objects of the company
  3. Full particulars of the signatories to the Memorandum and number of shares taken by    them.
  4. The names, addresses, and occupations of the directors, managing directors or managers, etc.

              The number and classes of shares.

  • The minimum subscription
  • The qualification shares of a director and the remuneration of the directors.
  • The amount payable on application, on the allotment, and on calls.
  • The names of the underwriters.
  • The estimated amount of preliminary expenses.
  • The names and addresses of the auditors of the company
  • Particulars about reserves and surplus
  • Voting rights of the different classes of shares.
  • Reports of the auditors regarding profits and losses of the company.
  • A similar report by the Chartered Accountant regarding the Profits and Losses and Assets and        .                  Liabilities of the Company.[10]


Those who issue prospectus holding out to the public the great advantages which will accrue to a person who will take shares in a proposed undertaking, and inviting to take shares on the faith of the representation therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent and quality of the privileges and advantage which the prospectus holds as an inducement to take shares.[11]


Section 62 of the Act fuses the arrangement connecting with the common obligation for misquoting in the plan. It gives plainly that where an outline welcomes people to buy in for shares in or debentures of an organization obligation gathers to pay to each individual who buys in for any offers or debentures on the confidence of the plan for any misfortune or harm he might have supported by reason of any false assertion included in that. Each individual who, becomes responsible to make any installment by temperance of such deception might recuperate commitment as in instances of agreement from whatever other individual who, whenever sued independently would have been at risk to make a similar installment except if the previous individual was and the last individual was not at real fault for false distortion. The proportion of harms for the misfortune endured by reason of the false assertion, oversight and so on is the distinction between the worth which the offers would have had yet for such articulation or exclusion and the genuine worth of the offers at the hour of designation. In applying the right proportion of harms to be granted to repay an individual who has been falsely instigated to buy shares, the significant model is the distinction between the price tag and their real worth. It very well might be fitting to utilize the ensuing business sector cost of the offers after the extortion has become exposed and the market has settled.


section 63 of the Act fuses the arrangement connecting with the criminal obligation for error in the plan. It gives that where an outline incorporates any false assertion, each individual who approved the issue of the plan will be culpable with detainment for a term which might stretch out to two years or with a fine which might reach out to Rs 50,000 or with both. The offense is compoundable under Section 621A. It must be noticed that under such cases when the arraignment builds up the deception of articulation in an outline endorsed by a chief, and so forth, the onus is moved to the litigant of demonstrating either that the assertion was unimportant or that he trusted it to be valid. A specialist who has given the assent won’t be considered to be ipso facto an individual who approved the issue of the plan. [12]


  • Remedies for civil liability

There are two remedies available against the company:

Revocation of the Contract- The person who purchased the securities can cancel the contract. The money will be refunded to him, which he paid to the company.

Damages for Fraud– After a revocation, the shareholders can claim damages from the company by filing a case in court.

Remedies against the Directors, promoters, and the authorized persons who issued the prospectus:

Damages for misstatement– Compensation will be given to the shareholders for the loss by the directors, promoters, and authorized persons.

Damages for non-disclosure- Fine of Rs. 50000 ad recovering the damages must be given by the people who mislead the purchasers from the one that is chargeable for the damages

  • Remedies for criminal liability

Imprisonment up to 2 years or Rs. 50000 fine must beard by the people that mislead.

A person who knowingly issued a misstatement is punishable for imprisonment up to 5 years or with a fine of Rs. 100000 or both.

New Brunswick Canada Railway V. Muggeridge

In this case, Justice Kindersley laid down the ‘golden rule’ for framing of a prospectus of a company.  In this case, it was laid that, those who issue a prospectus withstand to the public great advantages which will accrue to the persons who will take shares in the proposed undertaking. On the faith of the details given in the prospectus, the people are invited to take shares. Everything should be accurate and at its best knowledge in the prospectus. Nothing should be stated in the prospectus which is not true in nature or is non-existing. In simpler words, the true nature of the company’s venture must be disclosed in the prospectus.[13]


Any change or variation in the terms and objects of the prospectus shall be done only passing of a special resolution through postal ballot and the notice of such resolution should have the following details:

  • Particulars of the terms of the contract to be varied.
  • Particulars of the proposed variation.
  • Reasons or justification for such variation.
  • Effect of the proposed variation in the financial statement or position of the company.
  • Major risk factors pertaining to the new objects.

Secondly, an advertisement of the notice for getting the resolution passed for varying the terms shall be published in PAS-1 form simultaneously with dispatch of postal ballot notices to shareholders. [14]


Application forms

As stated under section 33, the application form for the securities is issued only when they are accompanied by a memorandum with all the features of prospectus referred to as an abridged prospectus.

The exceptions to this rule are:

  • When an application form is issued as an invitation to a person to enter into underwriting agreement regarding securities.
  • Application issued for the securities not offered to the public.


For filing and issuing the prospectus of a public company, it must be signed and dated and contain all the necessary information as stated under section 26 of the Companies Act,2013:

  • Name and registered address of the office, its secretary, auditor, legal advisor, bankers, trustees, etc.
  • Date of the opening and closing of the issue.
  • Statements of the Board of Directors about separate bank accounts where receipts of issues

      are to be kept.

  • Statement of the Board of Directors about the details of utilization and non-utilisation of receipts of previous issues.
  • Consent of the directors, auditors, bankers to the issue, expert opinions.
  • Authority for the issue and details of the resolution passed for it.
  • Procedure and time scheduled for the allotment and issue of securities.
  • The capital structure of the in the manner which may be prescribed.
  • The objective of a public offer.
  • The objective of the business and its location.
  • Particulars related to risk factors of the specific project, gestation period of the project, any pending legal action and other important details related to the project.
  • Minimum subscription and what amount is payable on the premium.
  • Details of directors, their remuneration and extent of their interest in the company.
  • Reports for the purpose of financial information such as auditor’s report, report of profit and loss of the five financial years, business and transaction reports, statement of compliance with the provisions of the Act and any other report.[15]


A prospectus is basically a formal and legal document issued by a body corporate that acts for inviting offers from the public for subscription or purchase of any securities. Every public company is entitled to issue a prospectus for its shares or debentures. But, the same is not required for a private company.

A prospectus for being a substantial one should contain fundamental necessities and it should be enlisted. In the event that any plan isn’t enrolled, it is considered as an invalid one and with negation to arrangements set down for the legitimate outline. Such repudiation is culpable under area 26(9).

At whatever point the promotion assumes that the plan is made, it should contain the notice of the organization. At the point when an organization is making a proposition for a proposal of protections, then, at that point, preceding giving a plan, it might give a distraction outline. An organization can likewise give a rack plan when it needs to make a deal with at least one protection or class of protection and afterward it doesn’t need to give an outline prior to giving a proposal of every security.

In this way, a plan assumes a significant part for any open organization and it should be under the arrangements set down under the Companies Act 2013


  • The Companies Act, 2013, § 3 (1), The Gazette of India, pt. II sec. 1 (August 30, 2013).
  • Supra note 7