Question

What is a prospectus? Is it necessary for every company to file a prospectus?

Answer 1

A prospectus is an advertisement or an invitation from a company to the general public to subscribe or purchase shares or debentures issued by the company. This invitation to purchase shares is also known as the initial public offering (IPO), through which a public company can raise the funds it requires. However, in the case of a private company, it is not necessary to file a prospectus as it is prohibited from raising funds from the public. Only a company that needs to raise funds from the general public by issuing shares or debentures is required to file a prospectus.