Define 'Prospectus' and explain in brief its contents. What is the difference between 'prospectus' and 'statements in lieu of prospects'?

Question: Define 'Prospectus' and explain in brief its contents. What is the difference between 'prospectus' and 'statements in lieu of prospects'? [BJS 2017]

Find the question and answer of Company Law only on Legal Bites. [Define 'Prospectus' and explain in brief its contents. What is the difference between 'prospectus' and 'statements in lieu of prospects'?]

Answer

A prospectus is a legal document that provides essential information about a company to potential investors. It is governed by the Companies Act, 2013 (and its relevant rules and regulations) in India. A Public Company issues securities to the public through a prospectus which is also referred to as a 'public offer'.

Section 2(70) of the Companies Act, 2013 defines Prospectus as follows:

"prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of body corporate."

Matters to be stated in the Prospectus are described in detail in Section 26 of the Companies Act, 2013. A prospectus contains the following matters:

i) Name and address of the registered office of the company, company secretary, chief financial officers, auditors, legal advisers, bankers, trustees, if any under-writers and such other persons as may be prescribed.

ii) date of opening and closing of the issue and declaration about the issue of allotment letters and refunds within the prescribed time.

iii) Statement by the board of directors about the separate account where receipt of issues is to be kept.

iv) Consent of directors, auditors, and bankers to the issue, experts' opinion and of such other person as may be prescribed.

v) Authority for the issue and details of the resolution passed for it.

vi) Procedure and time schedule for the allotment and issue of securities.

vii) The capital structure of the company

Difference between 'Prospectus' and 'Statements in lieu of Prospects'?

A Prospectus is a formal document that is required to be provided to investors when securities are offered for sale. It contains detailed information about the securities being offered, such as the terms of the offering, the risks involved, and the financial condition of the issuer.

Statements in lieu of prospectus, also known as offering circulars, are similar to prospectus but with fewer information requirements and less stringent rules. It's typically used for smaller, less complex offerings and for issuers that are not required to file a prospectus. These statements also provide information about the securities being offered but typically contain less detailed information than a prospectus.

In other words, the prospectus is prepared for filing with the Registrar of Companies and publicity whereas the Statement in Lieu of the Prospectus is prepared only for filing purposes. The Prospectus does publicity and has a selling approach whereas the Statement in Lieu of the Prospectus is prepared for fulfilling the legal formality of filing with the Registrar of the companies and has an informative approach.

Company Law – Notes, Case Laws, And Study Material

Test Series for Competitions