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get which among the following prospectus contains salient features of a prospectus is a brief version of the information contained in the prospectus? from screen.
Prospectus is a legal document for market participants and investors to pursue, detailing the features, prospects and promise of a financial product. Learn more
Prospectus Prospectus meaning
The prospectus is a legal document, which outlines the company’s financial securities for sale to the investors.
According to the companies act 2013, there are four types of the prospectus, abridged prospectus, deemed prospectus, red herring prospectus, and shelf prospectus.
The prospectus is a legal document for market participants and investors to pursue, detailing the features, prospects, and promise of a financial product.
It is mandated by the law to be supplied to prospective customers.
In an IPO, the prospectus tells potential shareholders about the company’s plans and business model.
For insurance and investment fund customers, a prospectus lists out the objective of the product, inclusions, and exclusions, fees, etc.
For an ETF, a prospectus informs likely investors of the fund’s goals, history, portfolio, fees and costs, and other financial details.
What is a Prospectus and its importance?
The company provides prospectus with capital raising intention. Prospectus helps the investors to make a well-informed decision because of the prospectus all the required information of the securities which are offered to the public for sale.
Whenever the company issues the prospectus, the company must file it with the regulator. The prospectus includes the details of the company’s business, financial statements.
To notify the public of the issue
To put the company on record with regards to the terms of the issue and allotment process
To establish accountability on the part of the directors and promoters of the company
Types of prospectus
According to Companies Act 2013, there are four types of prospectus.Deemed Prospectus – Deemed prospectus has mentioned under Companies Act, 2013 Section 25 (1). When a company allows or agrees to allot any securities of the company, the document is considered as a deemed prospectus via which the offer is made to investors. Any document which offers the sale of securities to the public is deemed to be a prospectus by implication of law.Red Herring Prospectus – Red herring prospectus does not contain all information about the prices of securities offered and the number of securities to be issued. According to the act, the firm should issue this prospectus to the registrar at least three before the opening of the offer and subscription list.Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013. Shelf prospectus is issued when a company or any public financial institution offers one or more securities to the public. A company shall provide a validity period of the prospectus, which should not be more than one year. The validity period starts with the commencement of the first offer. There is no need for a prospectus on further offers. The organization must provide an information memorandum when filing the shelf prospectus.Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient features of the prospectus as specified by SEBI. This type of prospectus includes all the information in brief, which gives a summary to the investor to make further decisions. A company cannot issue an application form for the purchase of securities unless an abridged prospectus accompanies such a form.
What is prospectus and its contents?
The prospectus contents are specified in the Companies Act. The prospectus must touch over the following content points:
Details of the company, such as name, registered office address, and objects
Details of signatories to the Memorandum and their shareholding particulars
Details of the directors
Details of shares offered and the class of the issue as well as voting rights
Minimum subscription amount
The amount payable on application, on allotment, and on further calls
Underwriters of the issue
Auditors of the company
Audited reports regarded profit and losses of the company
How a prospectus is useful for investors
A prospectus is a legal document that must be submitted to the concerned authority that contains information for the public regarding an investment offering. It is very useful for investors as they can learn about the risks associated with buying securities or funds. Normally, risks are briefly mentioned early in the prospectus and described in more detail later. When the company is acquiring funds through the issuance of stocks or bonds, it is the duty of investors to review the company’s financials to make sure it is financially stable enough to uphold its obligations.
Companies Act MCQ Part 3 for SEBI Grade A
Dear aspirants,We are presenting you the Companies Act MCQ Part 3 for SEBI Grade A Companies Act Section of the SEBI Grade A exam. It covers number of
Companies Act MCQ Part 3 for SEBI Grade A
We are presenting you the Companies Act MCQ Part 3 for SEBI Grade A Companies Act Section of the exam.Q1. Which section of Companies Act, 2013 states that SEBI has powers to regulate Issue and transfer of securities?
Section 23 Section 24 Section 25 Section 26Answer: (2)The Section 24 of Companies Act 2013 states that Issue and transfer of securities and non-payment of dividend by listed companies or those companies which intend to get their securities listed on any recognised stock exchange in India be administered by the Securities and Exchange Board of India.Q2. Which section of Companies Act 2013 is related to issue of Shelf Prospectus?
Section 31 Section 32 Section 25 Section 20Answer: (1)The provisions relating to the issue of Shelf Prospectus are contained in Section 31 of the Companies Act, 2013.Q3. A company proposing to issue a red herring prospectus shall file it with the Registrar at least ______ days prior to the opening of the subscription list and the offer
15 10 7 3Answer: (4)Such company proposing to issue a red herring prospectus shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer
Q4. A company filing a shelf prospectus shall be required to file an ______?
Article of Information
Article of Association
Information ArticleAnswer: (1)A company filing a shelf prospectus shall be required to file an information memorandum containing all material factsQ5. If a company want to issue securities in stages, which type of prospectus it must issue?
Red herring prospectus
Deemed prospectus Shelf prospectus Abridged prospectusAnswer: (3)Shelf prospectus means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.Q6. What is the validity period of Shelf Prospectus?
3 months 6 months 9 months 1 yearAnswer: (4)The validity of the Shelf Prospectus shall be for a period not exceeding one year which shall commence from the date of opening of the first offer of securities under that prospectusQ7. Which among the following prospectus is issued by company prior to the issue of actual prospectus?
Red herring prospectus
Deemed prospectus Shelf prospectus Abridged prospectusAnswer: (1)A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.Q8. Which among the following prospectus contains salient features of a prospectus is a brief version of the information contained in the prospectus?
Red herring prospectus
Deemed prospectus Shelf prospectus Abridged prospectusAnswer: (4)Abridged Prospectus means a memorandum containing such salient features of a prospectus. It is a brief version of the information contained in the ‘prospectus’ so that cost of public issue of capital may be reduced.Q9. Which section of Companies Act 2013 is related to issue of Red herring Prospectus?
Section 31 Section 32 Section 25 Section 20Answer: (2)The Section 32 of Companies Act, 2013 states that a company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.Q10. Which among the following information is not included in Red herring prospectus?
Number of Share offered
Details of Company Both 1 & 2Answer: (4)Red herring prospectus does not include complete particulars of the quantum or price of the securities
You must also read following MCQs:
Companies Act MCQ Part 1
Companies Act MCQ Part 2
Companies Act MCQ Part 4
Companies Act MCQ Part 5
Companies Act MCQ Part 6Click to go to SEBI Grade A Preparation PageTags: Companies Act MCQ Part 3, Companies Act MCQ Part 3 Quiz
Prospectus is a concept that helps you understand investments better. Find the definition and importance of Prospectus here. We have simplified it for you.
Reviewed by Vishnu | Updated on Aug 25, 2022
Share Catalogue Introduction Types of Prospectus
A prospectus is defined as a legal document describing a company’s securities that have been put on sale. The prospectus generally discloses the company’s operations along with the purpose of the securities being offered.
Types of Prospectus
*Deemed Prospectus *- As per Section 25(1) of the Companies Act, 2013, a document will be deemed to be a prospectus if the company agrees to allot or offer securities to the public.Abridged Prospectus - It is defined as the brief summary of the prospectus, which includes all useful and materialistic information filed before the registrar. As per Section 33(1) of the Companies Act, 2013, an abridged prospectus must be included with the documents for the purchase of securities issued by a company.Red Herring Prospectus - It is the prospectus that is required to be filed before the registrar prior to the offer. The prospectus generally lacks information such as the particular price or quantum of securities being offered.Shelf Prospectus - It is defined as the prospectus issued by a company, bank or financial institution for more than one class of securities.
As per the Companies Act, 2013, a prospectus can include information such as advertisement, circular or notice among other legal documents inviting the public for the offering. Also, the prospectus should be issued only for the purchase of a company's securities.
In order for a document to be considered a prospectus, it should act as an invitation for the public to purchase of stocks/shares, debentures or other instruments. Also, the prospectus should be issued by the company or an institution on behalf of the company and made solely for the public.
In case a private company wishes to convert to a public company, it is required to either issue a prospectus or file a statement in lieu of prospectus of which the provisions are mentioned under Section 70 of the Companies Act, 2013.
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