Question

Company prospectus means:

• A. a document which offers to family members to subscribe to securities of private company
• B. a document which will invite the public to subscribe to securities of private company
• C. a document which offers to a selected group of persons to subscribe to securities of public company
• D. a document which invites the public to subscribe to securities of a public company

Hint:

A private company cannot issue a prospectus to the general public. The term prospectus is legally associated with public companies inviting public subscription under the Companies Act, 2013.

Answer 1

The Correct Option is D

Concept: Under corporate jurisprudence, specifically within the statutory framework of the Companies Act, 2013, a prospectus serves as a formal legal document issued by a corporate entity. Its primary purpose is to invite offers from the public for the subscription or purchase of securities such as shares or debentures.

Step 1: Examine the statutory definition under Section 2(70) of the Companies Act, 2013. The law defines a prospectus as 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 inviting offers from the public.

Step 2: Analyze the distinction between private and public companies.

• Private Company: A private company is prohibited from inviting the general public to subscribe to its securities.

• Public Company: A public company is legally authorized to raise capital from the public through the issue of a prospectus.

Step 3: Evaluate the options. Options (A) and (B) are incorrect because private companies cannot invite public subscription. Option (C) describes a private placement rather than a public prospectus. Therefore, Option (D) correctly defines a company prospectus.