scorecardresearchExplain Like I'm 5: What is an IPO Prospectus?

Explain Like I'm 5: What is an IPO Prospectus?

Updated: 23 Mar 2022, 02:55 PM IST

A prospectus for an initial public offering (IPO) is a legal document required by SEBI for companies who want to list their stock on the stock exchange. It is published in the investor's interests and comprises all relevant information about the firm and its future objectives. Continue reading to learn more about the many kinds of prospectuses.

Prospectus is a legal documentation used by the company to market its share in the public.

Prospectus is a legal documentation used by the company to market its share in the public.

Prospectus is a legal documentation used by the company to market its share in the public. Every company who plans to go public issues a prospectus which is made available to retail investors.

A Prospectus of the company includes everything an investor wants to know about the company or the IPO. Mainly the prospectus includes the company's business, its strategy and goals the company wants to achieve in the future, historical achievements, market the company deals in and associated risk. The prospectus is issued ahead of the offering, and the investor must go through it before making the investment decision.

Why is a prospectus important?

A prospectus is important for the investor, as he/she should know all the possible information regarding the company and the offering so that the investor an make the required research and can make an informed and rational decision of investing as the stock market is uncertain and requires good amount of information which can be provided in the prospectus.

Types of Prospectus -

Deemed Prospectus

A document is deemed to be prospectus if the company decides to offer or allot securities to the public according to the Section 25(1) of the Companies Act, 2013. As the name suggests it is the document which is deemed to be the prospectus of the company. In general, any stock offered to sale by a company when listed in detail is considered to be deemed to be a prospectus.

Abridged Prospectus

It includes all the information important for the investor to know, in short it is a brief summary of the prospectus. According to the Section 33(1) of the Companies Act, 2013 an abridged prospectus must include the documents for the purchase of securities being offered.

Red Herring Prospectus

It is the prospectus which is filed before the offering before the registrar. The prospectus lacks the information regarding the price or amount of securities offered by the company to the public. The prospectus includes most of the information regarding the company's operations and prospectus.

Shelf Prospectus

It is said to be issued by the company, bank or financial institutions for more than one class of securities. It is a type of prospectus issued by a company who is making multiple issues of bonds for raising funds. Companies who issue Shelf prospectus should file a Information Memorandum in form PAS - 2.

Prospectus is an important documentation issued by the company for investors to know more about the company and the IPO. The inventors are advised to go through the prospectus thoroughly and in advance so that the decision made is not a hurried one, as decisions taken under pressure do not always come out fruitful in the stock market.

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First Published: 28 Feb 2022, 09:29 AM IST