Find the question and answer of Company Law only on Legal Bites.

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'?]AnswerThe definition of “prospectus” in the Indian Companies Act, 1956, (the “Act”) was based on the definition found in...

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

The definition of “prospectus” in the Indian Companies Act, 1956, (the “Act”) was based on the definition found in the English Companies Act [Section 455(1)]. It then underwent amendment in 1960 following the recommendation of the Companies Act Amendment Committee of 1957 and also in 1974. The current definition as per Section 2(70) of the Company Act, 2013 stands 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."

It is doubtful whether a television or film advertisement, as distinguished from the radio which appeals to the ear and not to the eye, may be treated as falling within the definition of a prospectus, the definition of the document in Section 3(18) of the General Clauses Act notwithstanding. On the other hand, a written invitation designed to induce persons invited to submit requests for purchasing or subscribing purchases will be a prospectus if it invites a subscription or purchase for the cash.

A Prospectus issued by or on behalf of a public company must contain the matters specified in Part I of Schedule II set out the reports specified in Part II of that Schedule and Parts I and II of Schedule II have to be read in conjunction with the clarifications etc. given in Part III of the said Schedule.

The power to deal with the issue of the prospectus is given to SEBI in the case of listed public companies and in case of those public companies which intend to get their securities listed on any recognised stock exchange in India and in any other case, the power lies with the Central Government.

The Act also deals with the concept of a deemed prospectus under Section 25(1) of the Company Act, 2013. This section is an exception to the issue of the prospectus. A company may allot or agree to allot any shares or debentures to an “issue house” without there being any intention on the part of the company to make shares or debentures available directly to the public through the issue of a prospectus. But then it shall, unless the contrary is proved, be evidence that an allotment of, or an agreement to allot, shares or debentures was made with a view to the shares or debentures being offered for sale to the public if it is shown:

(a) that an offer of the shares or debentures or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or

(b) that at the date when the offer was made, the whole consideration to be received by the company in respect of the shares or debentures had not been received by it.

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

Updated On 24 Jan 2023 10:31 AM GMT
Mayank Shekhar

Mayank Shekhar

Mayank is an alumnus of the prestigious Faculty of Law, Delhi University. Under his leadership, Legal Bites has been researching and developing resources through blogging, educational resources, competitions, and seminars.

Next Story