Prospectus under the Companies Act, 2013

Introduction 

Section 2(70) of the Companies Act, 2013 defines prospectus as any document inviting deposits or offers from the public for subscription of shares or debentures. 

• Includes shelf prospectus and red herring prospectus. 
• A document qualifies as a prospectus only if it invites subscription to shares/debentures/deposits and such invitation is made to the public.

What are the Contents of a Prospectus? 

• Address of registered office and names of directors, auditors, bankers, underwriters. 
• Opening and closing dates of the issue. 
• Capital structure and main objects of the company. 
• Minimum subscription and premium details. 
• Sources of promoter's contribution. 
• Risk factors, gestation period, and project completion deadlines. 
• Procedure and time schedule for allotment of securities.

What are the Categories of Prospectus? 

Shelf Prospectus (Section 31): 

• Issued by public financial institutions or banks for one or more issues of securities. 
• No separate prospectus required for subsequent offerings. 
• Validity period must not exceed one year from opening date of first offer. 
• Company must file an Information Memorandum containing details of new charges and financial changes. 
• Applicants must be informed of any changes; they may withdraw within 15 days and receive a refund. 

Red Herring Prospectus: 

• Lacks complete particulars about quantum or price of securities. 
• Must be filed with the Registrar at least three days before opening of subscription list. 
• Variations between red herring and final prospectus must be highlighted. 
• Applicants can withdraw within 7 days of intimation of variation under Section 60B(7). 

Abridged Prospectus: 

• A summarised version of the full prospectus. 
• Under Section 33(1), every application form for securities must be accompanied by it. 
• Contains all material information briefly for investor convenience. 
• Reduces cost of public issue of capital. 

Deemed Prospectus (Section 25(1)): 

• Arises when a company allots securities to a person who then offers them to the public. 
• The document of such offer is treated as a deemed prospectus. 
• All provisions of content and liability of a prospectus apply to it. 
• In SEBI v. Kunnamkulam Paper Mills Ltd., a rights issue with renunciation to more than fifty outsiders was held to be a deemed prospectus.

Legal Requirements for Issue of Prospectus (Section 26): 

• Prospectus can only be issued after incorporation. 
• Must be registered with the Registrar before public issuance. 
• Signed copy must be filed by all named directors. 
• Consents of experts, auditors, bankers, and solicitors must be attached. 
• No prospectus can be issued more than 90 days after delivery of its copy for registration. 
• Contravention attracts fine on the company and every person party to the issue.

What are the Liability for Misstatement? 

Criminal Liability (Section 34): 

• Applicable where a prospectus contains untrue/misleading statements or material omissions. 
• Every authorising person is liable for fraud under Section 447. 
• Defences: statement was immaterial; reasonable ground to believe it was true; omission was necessary. 

Civil Liability (Section 35): 

• Compensation payable to persons who suffered loss acting on a misleading prospectus. 
• Liable parties include directors, promoters, experts, and persons who authorised the issue. 
• Where fraudulent intent is proved, personal liability without any limitation is imposed.

Conclusion 

Prospectus law balances capital formation with investor protection.Mandatory disclosures and strict liability provisions ensure truthful public communication. 

Robust enforcement remains essential to maintaining investor confidence and market integrity.