Define the term „prospectus‟ and explain the circumstances under which a company may issue a prospectus.
ANSWER
Under the Companies Act “prospectus” means:
• “Any prospectus, notice, circular advertisement or other invitation offering to the public for subscription or purchase any shares or debentures of a company.”
• Any invitation intended to avail shares or debentures to the public qualifies as a prospectus.
• A prospectus does not offer securities but invites offers from prospective investors.
• “Public” is not restricted to the public at large, it includes a section thereof.
• Its contents are prescribed law and a copy thereof must be delivered to the registrar for registration.
• A newly formed company may issue a prospectus inviting subscription for its shares.
• An existing company may issue it when floating new share to the public.
• When a private company goes public, pursuant to Sec.32 (1) of the Act, it may issue prospectus or statement in lieu.