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Prospectus And Allotment of Securities

Types of prospectus and related matters


Abridged Prospectus [Section 2(1) read with Section 33]

As per section 2(1) of the Companies Act, 2013 “abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the SEBI by making regulations in this behalf.

Section 33 of the Act provides 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. 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.

Nothing aforesaid shall apply if it is shown that the form of application was issued—

(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to such securities; or

(b) in relation to securities which were not offered to the public.

Deemed Prospectus - Offer For Sale [Section 25 read with Section 28]

  • As per section 25 of Companies Act, 2013 if 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. 
  • In simple words, deemed prospectus means a prospectus issued by company at the time of "offer or sale"
  • All enactments and rules, which are applicable on prospectus shall also apply on deemed prospectus.
  • Additional informations required to be stated in a deemed prospectus are :

   (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;

  • According to the section in order to construe “Offer for Sale” either of the following conditions needs to be fulfilled:

   (a) “Offer for sale” to the public was made within six months after the allotment or agreement to allot; or

   (b) 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. 

Shelf Prospectus (Section 31)

Shelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. 

In simple words Shelf Prospectus is a single prospectus for multiple public offers. Issuer is permitted to offer and sell securities to the public without a separate prospectus for each act of offering for a certain period. 

Some Important Points Regarding Shelf Prospectus -

  • Shelf Prospectus is valid for 1 year.
  • The validity period of 1 year 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.
  • For every subsequent issue with in validity period company shall issue information mamorandum not need to issue full prospectus and such information mamorandum shall be filied with ROC in e-form PAS-2 with in prescribed time.
  • Information mamorandum shall contain all material facts relating to 

   a) new charges created,

  b) 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

   c) such other changes as may be prescribed,

Red herring Prospectus (Section 32)

Red herring Prospectus means a prospectus which does not include complete particulars of the quantum or price of the securities included therein. 

Some Important Points Regarding Red Herring Prospectus -

  • As per section 32 of Companies Act, 2013 a company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus. In simple terms red hearing prospectus issued prior to the issue of a prospectus.
  • red herring prospectus shall be filied with ROC at least three days prior to the opening of the subscription list and the offer.
  • All enactments and rules, which are applicable on prospectus shall also apply on red herring prospectus.
  • 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 SEBI.

 

 

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Chapter's Name:

1. Introduction to Company Law
2. Incorporation of Companies
3. MOA and AOA of Company and Its Alteration
4. Prospectus And Allotment of Securities
5. Share and Share Capital

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