Role of Prospectus in a Company
“Many governments feel that if they allow private companies to issue prospectuses, the opposition and other pressure groups may allege the involvement of government in the malpractices of private companies. ”
A company is bound to raise finances for its sustenance and growth. For this purpose usually the public is invited to purchase shares and debenture of the company through an announcement.
A document containing detailed information about the company and an invitation to the public regarding subscription to shares and debentures is called a company prospectus. In many countries private companies cannot issue a prospectus because they are sternly forbidden from inviting the public to subscribe to their shares.
Only public companies can issue a prospectus. Actually this is done to avoid various kinds of malpractices that private companies tend to indulge in. Many a time it has happened that private companies have robbed public of their hard earned money.
So, many governments feel that if they allow private companies to issue prospectuses, the opposition and other pressure groups may allege the involvement of government in the malpractices of private companies.
Let’s be clear about the fact that a prospectus is not an offer in the contractual sense but only an invitation to offer. A document construed to be a prospectus should be issued to the public.
A prospectus should have the fundamentals like, it must be an invitation offering to the public and it must be made on the behalf of the company. A prospectus must be filed with the registrar of companies before it is issued to the public.
If the promoters are certain of obtaining the requisite capital through private contacts, even a public company may not issue a prospectus. The promoters prepare a summary prospectus containing obligatory information and this document is known as a statement representing a prospectus.
A prospectus duly dated and signed by all the directors is to be filed to the registrar. A prospectus brings to the notice of the public that a new company has been formed.
The company tries to persuade the public that it will provide the best prospects for their investment. A prospectus outlines in detail the terms and conditions on which the shares have been offered. Usually, the orders for the procurement of shares are done via an application that comes along with the prospectus.
Author - DeeKay
Tags - Finance, Economy
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