This article has been written by Nikhat Fatima pursuing law from Rizvi Law College. Picture credits to

Corporate Law, also inferred as Company Law or Business law is a body that regulates the rights and code of companies organizations and businessmen. any advertisement offering shares or debentures of the company for sale to the public is a prospectus. The law is aimed at easing the process of doing business in India and improving corporate governance by making companies more accountable.

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”.

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.

Advertisement of the Prospectus

Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of the prospectus. In any manner where an advertisement of any prospectus of a company is published, it shall be necessary to specify therein the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and the names of the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure.

Types of Prospectus

  • Red Herring Prospectus
  • Shelf Prospectus
  • Abridged prospectus
  • Deemed Prospectus
  1. Red Herring Prospectus

Specified under Art 31 of the Companies Act 2013 a red herring prospectus is issued prior to the prospectus when a company is proposing to make an offer.

It shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer. A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.

  • Shelf Prospectus

A prospectus that has been issued by any public financial institution, company, or bank for one or more issues of securities or class of securities as mentioned in the prospectus is known as Shelf prospectus. When a shelf prospectus is issued then the issuer does not need to issue a separate prospectus for each offering he can offer or sell securities without issuing any further prospectus.

The provisions related to shelf prospectus have been discussed under section 31 of the Companies Act, 2013.

  • Abridged prospectus

A summary of a prospectus filed before the registrar. It contains all the features of a prospectus known as Abridged prospectus. An abridged prospectus contains all the information of the prospectus in brief so that it should be convenient and quick for an investor to know all the useful information in short.

Section33(1) of the Companies Act, 2013 also states that when any form for the purchase of securities of a company is issued, it must be accompanied 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.

Objectives of Issuing the Prospectus

  • To bring to the notice of the public that a new company has been formed.
  •  To preserve an authentic record of the terms and allotment on which the public have been invited to buy its shares or debentures.
  •  To secure that the directors of the company accept responsibility for the statements in the prospectus.

Contents of Prospectus

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

  • Name and address of the company
  • Objects of the company
  • Full particulars of the signatories to the Memorandum and number of shares taken by them.
  • 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.

Consequences of Misstatement in Prospectus

Civil and Criminal liabilities shall be faced by any person who provides with misstatement in a prospectus.

  1.  Civil liability

In case, misleading prospectus amounts to misrepresentation, the aggrieved persons can repudiate the contract. They can claim a refund of their money. Damages can also be claimed by the persons found guilty.

  • Criminal liability

In case any deliberate concealment is made, directors will be punished with a fine of Rs. 5,000 or imprisonment up to two years or both. If it is a fraud the fine will extend to Rs. 10,000 or 5 years imprisonment or both.

Statement in Lieu of Prospectus

When the prospectus is not issued by the company a statement in lieu of a prospectus must be filed with the Registrar at least three days before the allotment of shares. The contents of the statement in lieu of prospectus are very much similar to the prospectus. The statement must be signed by all the directors or their agents authorized in writing. These provisions do not apply to a private company.


A prospectus plays an important part in the development of a public limited company. It is one of the most important booklets as it instructs more about the company in a detailed manner about its share.

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