Question

Name the document which invites the general public to subscribe to the shares and debentures of the company.

Answer 1

Prospectus- After getting the company incorporated, promoters will raise finances. The public is invited to purchase shares and debentures of the company through an advertisement. A document containing detailed information about the company and an invitation to the public subscribing to the share capital and debentures is issued. This document is called ‘prospectus’. Private companies cannot issue a prospectus because they are strictly prohibited from inviting the public to subscribe to their shares. Only public companies can issue a prospectus.

“A prospectus means any document described or issued as prospectus and includes any notice, circular, advertisement or other document inviting deposits from public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate.” —Section 2(36) of the Companies Act

The 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.