When a Prospectus Is Required

Not every company that wants money needs a prospectus. The requirement is tied directly to how a company proposes to raise funds.

A private company is, by definition (Section 2(68)), barred from inviting the public to subscribe for its securities - its Articles restrict share transfer and prohibit any invitation to the public. It raises capital privately: from promoters, family, or through a private placement (see the last section of this chapter). It has no occasion to issue a prospectus.

A public company, by contrast, may invite the general public to subscribe for its shares or debentures. Whenever it chooses to do so - rather than placing the issue privately or allotting it entirely to existing members by way of a rights issue circulated only to them - it must first issue a prospectus, or a document that in substance functions as one.

Section 26 of the Companies Act, 2013 lays down the legal machinery: a prospectus must be dated, signed by every director (or a person duly authorised), and registered with the Registrar of Companies (RoC) before it is issued to the public. Copies of the consents given by the auditors, bankers, legal advisers and experts named in the document must be filed along with it. No prospectus can be issued unless this filing is completed - the company cannot circulate the document first and file it later. …