After getting the Certificate of Incorporation or Registration a public limited company invites the public to subscribe to its shares. This is done by issuing a document called Prospectus. Under the Companies Act, a prospectus has been defined as “any document described or issued as a prospectus and includes any notice, circular, advertisement or other document, inviting deposits from the public or inviting offers from the public for the subscription or purchase of shares or debentures of a company or body corporate”.
The main objectives of issue of a prospectus are:
(a) to inform the public about the company;
(b) to induce people to invest in the shares or debentures of the company; and
(c) to provide an authentic information about the company and the terms and conditions of issue of shares and debentures.
The prospectus usually contains the following information which is considered important for the prospective investors of shares and debentures of the company.
(a) General information regarding the name, office of the company, stock exchange where shares are to be listed, date of opening and closing of the issue, credit rating information, name of underwriters, brokers and bankers.
(b) Capital structure of the company.
(c) Terms of payment and application procedure.
(d) Company management and details of the project and project report.
(e) Other listed companies under the same management.
(f) Outstanding litigations and defaults.
(g) Management perception of risk factors.
The prospectus must be prepared with great care because on the basis of its details the public subscribes to the capital of the company. No facts should be withheld in this. It must not contain even an idea of falsehood. It should contain only truth, complete truth and nothing but truth. The future schemes and bright futures of the company are presented through this. Companies which do not want to issue a prospectus may submit a statement in lieu of prospectus to the Registrar of Companies. It is a copy of the prospectus but is not issued to the public.