Prospectus

(c) Prospectus

Public Offer vs Private Placement — Section 23: a public company may raise share capital in two broad ways: (i) a public offer, by issuing a prospectus inviting the general public to subscribe; or (ii) a private placement, offering securities to a select group of persons (not exceeding the number prescribed under Section 42 in a financial year, excluding qualified institutional buyers and employees under a stock option scheme). A private company, by contrast, is prohibited from making a public offer altogether — it may only raise capital through private placement, a rights issue, or a bonus issue.

Definition of Prospectus — Section 2(70): "any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or a 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 a body corporate."

Matters to be stated in a Prospectus — Section 26: a prospectus must disclose, among other things: particulars of the company's business and its objects; its capital structure and the purpose for which the funds raised will be used; particulars of the directors and key managerial personnel; the auditor's report on the company's assets, liabilities, and profits/losses for the preceding financial years; and the risk factors specific to the proposed project — so that a prospective investor can make an informed decision, not merely an optimistic one.

Shelf Prospectus — Section 31: certain classes of companies (as SEBI may specify by regulation — typically financial institutions and banking/non-banking companies issuing debt securities) may file ONE prospectus for a whole series of tranches of securities, rather than filing a fresh prospectus for every single issue. The shelf prospectus states a validity period of not more than one year from the date the first offer under it opens; further offers made within that year do not need a fresh prospectus, only an information memorandum updating any material changes.

Red Herring Prospectus — Section 32: filed with the Registrar before the opening of the subscription list, at a stage when the prospectus does not yet contain complete particulars of the quantum or price of the securities being offered. It is the document typically used in a book-built public issue, allowing the company to gauge investor demand before finally fixing the issue price, after which the complete prospectus is filed.

Mis-statements in a Prospectus:

• Section 34 — Criminal liability: where a prospectus, issued, circulated, or distributed, includes any statement that is untrue or misleading, or where any inclusion/omission is likely to mislead, every person who authorised the issue of the prospectus (promoter, director, or expert who gave consent) is liable to be punished under the Act's fraud provisions. …