Q.Define a prospectus as per the Companies Act, 2013. What are its essential features?

A prospectus is the formal document through which a public company invites the general public to invest in its securities, so the law defines it broadly enough to catch any document performing that function, whatever it is titled.

The definition is deliberately wide so that a company cannot avoid prospectus obligations simply by giving its public invitation a different name.

A prospectus, as defined in Section 2(70) of the Companies Act, 2013, is any document described or issued as a prospectus, and includes a red-herring prospectus, a shelf prospectus, or any notice, circular, advertisement or other document that invites offers from the public for the subscription or purchase of any securities of a company, or that invites deposits from the public. The definition is intentionally wide, so that the label attached to a document does not decide whether it is legally a prospectus - its function does.

Three essential features mark a document as a prospectus:

1. It is an invitation. A private negotiation between a company and a single investor, or a family arrangement to subscribe shares, is not a prospectus; a prospectus solicits offers rather than concluding one directly.
2. The invitation is made to the public, or to a section of the public, rather than to a closed, pre-identified group - this is exactly what separates a genuine prospectus from a private placement offer letter under Section 42.
3. The invitation relates to securities or deposits - shares, debentures, or other instruments of the company, or an invitation to place money with the company as a deposit.

Because a prospectus is a legally binding disclosure document rather than a marketing leaflet, the Act requires it to be dated, signed by every director (or a duly authorised person), and registered with the Registrar of Companies before a single copy is issued to the public (Section 26). Any untrue statement in it exposes the responsible persons to civil liability under Section 35 and criminal liability under Section 34.

Students often say a prospectus is 'only a document advertising shares' and forget to mention that the invitation must be to the public and relate to securities or deposits - a private offer letter is not a prospectus no matter how detailed it is.