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Prospectus

Prospectus:

According to Section 2(70) of CA 2013, prospectus is "Any document released for advertising or other document requesting bids from the general public for the subscription or acquisition of any stocks of a body corporate". The provisions of Section 30 of CA 2013 pertain to the prospectus advertising. The issuing firms sell a predetermined no. of shares to the public at large at a predetermined price. In general, the concerns are underwritten to guarantee victory in the event of a poor public reaction.

Section 26: S. 26 of CA 2013 specifies the elements of a prospectus, as well as civil and criminal liabilities for any misstatement in the prospectus. The SEBI has also imposed additional disclosure obligations. Name, address, registered office, operations, BOD, capital, subscriptions opening and closing dates, brokers,

underwriters, minimum subscription, and other information should be included in the prospectus. The transaction is conducted in full view of the public, with an outreach to the entire investing public. The total amount is distributed to applicants in a non-discriminatory manner. This procedure, however, is extremely costly. Administrative costs include prospectus printing expenses, advertisement/publicity expenses, accountancy expenses, legal expenses, bank expenses, stamp duty, listing fees, registration fees, travel costs, document filling costs, mortgage deed registration fees, and postage, among others.

Penalty for non-compliance of Section 26:

Any person who discloses misstatement in a prospectus will be subject to civil and criminal penalties.
  1. Civil liability:
    In the event that a false prospectus constitutes misrepresentation, the contract can be repudiated by the injured parties. They are entitled to a refund of their funds. The people who are found guilty can also sue for damages.
     
  2. Criminal liability:
    Directors who knowingly conceal information will face a fine of Rs. 5,000 or a sentence of upto 2 years in prison, or both, if they are found guilty. If it is found to be a fraud, a punishment of Rs. 10,000 or 5 years in prison, or both, shall be imposed.
     

Types of Prospectus:

The types of prospectus are broadly divided into four categories abridged Prospectus, deemed Prospectus, shelf Prospectus, red Herring Prospectus respectively.
  1. Abridged prospectus:
    The concept is discussed in Section 33(1) of the CA 2013. A prospectus is a long and voluminous document. The essential parts of the prospectus memorandum are contained in an abridged prospectus. A synopsis of a prospectus that has been filed with the registrar. It is an abridged prospectus that has all of the contents of a full prospectus. An abridged prospectus condenses all of the material in the prospectus so that a buyer may get all of the crucial data in a short amount of time. Its main purpose is to safeguard investor's interests. It lowers the cost of a public capital offering because it is smaller than a prospectus. It saves a lot of time for buyers by allowing them to quickly extract the most critical information from the entire prospectus.
     
  2. Deemed Prospectus:
    According to 25(1) of CA 2013, When a corporation allots or accepts to allot shares/debentures with the intention of selling them to the public, any document used to make the public offering is deemed to be a prospectus issued by a corporation for all circumstances. If the amount of such individuals surpasses 50, a rights issue to current members with a right to renunciation in the interests of others becomes a deemed prospectus. The main goal is to inform the audience that a new firm has been formed, to keep an accurate record of the aspects and allocation on which the public has been welcomed to buy the company's shares/debentures, and to ensure that the company's directors take accountability for the declarations in the prospectus.
     
  3. Shelf Prospectus:
    This concept is discussed under section 31 of CA 2013. A prospectus wherein the securities or classes of securities contained in it are issued for subscription in one/more offerings over a period of time without the need for a subsequent prospectus. It is a single prospectus for a number of public offerings. For a limited time, an issuer may offer and sell securities to the public without filing a different prospectus for every act of selling No. The benefit of a shelf prospectus is that it eliminates the need to register a new prospectus each time the company offers securities. Only corporations issuing non-convertible borrowing instruments can file a shelf prospectus (these are the instruments that cannot be transferred into share capital again). Public financial institutions, PSBs, NBFCs, and publicly traded companies are all covered. These must meet certain requirements in order for the shelf prospectus to be issued.
     
  4. Red Herring Prospectus:
    The concept is discussed under section 31 of CA 2013. A red herring prospectus is a document that contains information on a prospective offering that is currently being developed by a corporation. It doesn't include all of the details on the quantity or value of the securities it contains. It provides the majority of information on the company's activities and prospects, but it omits essential facts about the issues, such as the price and number of shares available. Variations of the prospectus which haven't been thoroughly vetted by the SEC may portray a company in a overly positive light. Business Description, Financial Information, Risk Factors, Use of Proceeds, Industrial Overview, and Management are six items to seek for in a Draft Red Herring Prospectus.

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