The dictionary meaning of ‘abridge’ is to shorten something without destroying the meaning of the original. An abridged prospectus is a summary of the prospectus containing such details as be prescribed by the SEBI.
The Companies Act, 2013 defines abridged prospectus as:
Sec2.(1) ?”abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.
So, understanding what a prospectus is becomes the first step in understanding the whole concept.
Sec2. (70) – “prospectus” means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of body corporate;
A prospectus is any document through which a company communicates and invites the public to invest into it and subscribe or purchase its securities. A prospectus contains information about the financial position of the company, its directors, signatories to the memorandum, the objects of public offer, additional charges created, changes in the finance etc. It is mandatory for a company to provide correct information in the prospectus or it would be liable for misrepresentation and fraud.
A shelf prospectus is filed with the registrar when the company goes for IPO (Initial Public Offering) or subsequent offer and is coupled with an information memorandum. It is valid for one year from the date of opening of offer. Shelf prospectus is used to issue securities for subscription in one or more issues over a certain period without the issue of a further prospectus.
Now, suppose a company is unsure about the quantum or price of the securities, it files a red herring prospectus and after the closing of the offer, a full report is filed with SEBI and the registrar.
IMPORTANCE OF ABRIDGED PROSPECTUS
- A prospectus is a very voluminous document, and one cannot be expected to read it completely and invest in this fast pacing world. One needs quick, relevant and crisp information about the company. To serve this purpose, an abridged prospectus is made. It is short in length (5 sheets) and contains all information in bullets.
- Sec33 of The Companies Act 2013, lays down no form of application for the purchase of any of the securities of a company shall be issued unless such form is accompanied by an abridged prospectus. This implies that a company is barred from accepting offers from the public and the public is barred from investing into the company unless it has received an abridged prospectus. It has been made mandatory to enable the investors know about the nature and rights and repercussions which shall arise from investment and thus, protects the investor.
ESSENTIALS OF ABRIDGED PROSPECTUS
The abridged prospectus shall be in Times New Roman size 10 with 1.0 line spacing in A4 size paper. The information which is of generic nature shall be in the form of General Information Document. A copy of abridged prospectus shall be submitted to SEBI. The abridged prospectus including the application form shall not exceed 5 sheets.
- An issuer making a public issue of securities shall disclose whether the issue is 100% Book Building Issue or Fixed Price Issue and total no. of pages,
- Name and logo of the issuer, corporate identity number, details of the registered office and registrar of the issuer along with communication details.
- The dates of opening and closing of the issue with information regarding price, minimum bid, name of recognized stock exchange where the specified securities are listed.
- Information about the promoters and board of directors of the company, details about ten largest shareholders.
- Top 5 material outstanding litigations against the company and the amount involved, any disciplinary action taken by SEBI or Stock Exchange against the promoter/group companies including any outstanding action in the last 5 years and outstanding criminal proceeding against the promoter.
- Details about Group Companies/Subsidiaries/Joint Ventures.
- Details of all pending Government and other approvals.
- Summary statement of assets and liabilities, details of dividends and bonus issues, profit and loss account in last 5 years, the authorized, issued, subscribed and paid-up capital.
- Risks arising out of offences/litigations/losses, company/group, project/objects specific risks to be mentioned in bold, italics and be highlighted.
- Objects of the issue, cost and means of financing of the project.
- Stock market data, the maximum aggregate turnover of number of shares traded in the last six months, highest and lowest closing price, total volume (separately for all stock exchanges) in tabular format.