A public company invites the public to subscribe towards its share capital through the issue of prospectus. A prospective investor would naturally like to know the financial background of the company. Its activities, future programs, nature of investment, element of risk involved etc. Every investor would like to receive reasonable but sure returns. Prospectus of a company provides this information, through the prospectus an investor is informed of the soundness of the company’s venture.

A private company invites the public to subscribe towards its share capital in view of the restriction as discussed earlier. It is only the privilege of a public company to invite general public to participate in its investment. This is done by issue of the prospectus.

If a private company alters its articles in such a manner that it no longer includes the provisions which are required to be included in the articles of a company in order to constitute it in to a private company. Company thereafter, files with the registrar either a prospectus or statement in lieu of prospectus


Prospectus means any document described or issued as a prospectus and includes any notice, circular advertisements or other documents inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in ,or debentures of a body corporate.

Definition of prospectus includes any invitation to the public to subscribe to shares or debentures. A document by which an invitation is issued to the public to take shares or debentures of the company is called a prospectus is thus a document described or issued as a prospectus. Even inviting offers from the public for subscription to shares or debentures is a prospectus.

An abridged prospectus means a memorandum containing such salient features of a prospectus as may be prescribing. Any written invitation inviting a person to submit requests for purchasing or subscribing purchases of shares for cash will be prospectus. It is obligatory to issue a prospectus with prescribed particulars except:

1) when the shares or debentures are not offered to the public.
2) When shares are offered to the existing share holders as rights issues;
3) When the issue relates to shares or debentures which are in all respects uniform with shares or debentures previously issued and quoted in a stock exchange
4) Where a person is bonafide invited to enter into an underwriting agreement.

Prospectus are implications deemed in a prospectus ; Any document containing offers of shares or debenture for sale shall be deemed to be a prospectus an all the provision of the prospectus shall apply to it also. Such a document is deemed to be a prospectus by implication. Any offer for sale of shares to the public shall be deemed to be a prospectus.

Even the circular sent to dealers and agents for subscription in the share capital of the company would amount to inviting subscription from the public and will require issues and registration of prospectus.

Prospectus is, therefore a document through which the company secures capital by issue of shares or debentures to carry on its business or other allied activities. Any document even though not called a prospectus, if it is of such construction and nature as to invite capital participation will be construed as a Prospectus.

An advertisement stated that some shares are still available for sale according to the terms of the prospectus of the company which can be obtained on application it was held to be a prospectus. If the document satisfies the conditions of invitation to the public. It is a prospectus even though it is issued to a defined class of the public. A single private communication cannot be called issue. Public includes any section of the public.
All enactments and rules of law as to the contents of prospectus and as to the liability in respect of statements in and occasions from prospectus shall apply and have effect accordingly as of the shares or debentures offered to the public for subscription. Prospectus shall in addition state.

1) the net amount of the consideration received or to be received by the company in respect of the shares or debentures to which the offer relates and
2) The place and time at which the contract under which the said shares or debentures have been or are to be allowed may be inspected

The Amendment Act of 1974 has widened the definition of prospectus so as to include any document inviting deposits from the public.

Source: Business Law

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