What is a Prospectus? What are the Legal Requirements as to the Issue of Prospectus.

Section 2(70) define the term prospectus in these word, a prospectus mean any document described or issued as prospectus and includes a red-herring prospectus or self prospectus or any notice, circular, advertisement, or other document inviting offer from the public for the subscription or purchase of any securities of a body corporate. Thus, a prospectus is a document issued by the company inviting offers from the public for the subscription or purchase of its shares or debentures.

Issue of Prospectus: 

The legal requirements of a prospectus are as follows:

Compliance of SEBI Regulations: The SEBI  (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time, regarding capital issues to the public should be complied with for the proposed issue of securities (shares or debentures) to the public. A statement should also be made to this effect in the prospectus.

Registration: A copy of the prospectus, duly, dated and signed by all the directors must be registered with the Registrar. This fact must be stated, on the face of the prospectus. The copy for registration must be accompanied with the following documents:

  • The consent of the expert if his report is to be published in the prospectus;
  • A copy of every material contract and a copy of every contract regarding appointment and remuneration of managerial. personnel;
    and their written consent to act as such;
  • Written consent of auditors, legal adviser, banker and broker of the company to act in that capacity.

The prospectus must be issued within 90 days of its registration. A prospectus issued after the said period shall be deemed to be a prospectus, a copy of which has not been delivered to the Registrar for registration. The company and every person who is knowingly a party to the issue of the prospectus without registration shall be punishable with fine ranging from Rs 50,000 to Rs 3,00,000.

Terms of prospectus not to be varied or changed: According to Section 27, a company shall not vary terms of a contract referred to in the prospectus or objects for which the prospectus was issued except by way of special resolution. Dissenting shareholders shall be given an exit offer by promoters or controlling shareholders subject to such manner and conditions as may be specified by SEBI.

Application form to accompany abridged prospectus: Application form for shares or debentures must accompany abridged prospectus.

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