what is Abridged Prospectus

November 17, 2022

ABRIDGED PROSPECTUS This article seeks to elucidate the concept of Abridged Prospectus.

INTRODUCTION:

Prior to investing in a security, it is essential to gather thorough information on it. Additionally, it concerns investors’ access to comprehensive information about a securities offering. A prospectus is quite helpful in this regard. A prospectus is a document that covers all the details concerning a stock or debt offering by a public company, and filing one is required per section 2 of the Companies Act of 2013. However, prospectuses can grow lengthy, making them difficult to read. A condensed prospectus may be useful in this situation. Let’s look more closely and discover more about the same.

What is Abridged Prospectus?

An abridged prospectus is defined by the Companies Act of 2013 as a memo covering the key elements of a prospectus as may be prescribed by the Securities and Exchange Board by issuing regulations in this regard. The definition of “abridge” in the Cambridge Dictionary is “to shorten a written text.” Exactly that is what a condensed prospectus accomplishes. It converts a lengthy, complicated prospectus into a simpler, potentially more understandable version.

Abridged prospectus is defined as follows by the Companies Act, 2013:

Sec2.(1)

“Abridged prospectus” refers to a memo that includes the key elements of a prospectus as may be defined by the Securities and Exchange Board through relevant regulations.

Therefore, the first step in comprehending the entire notion is to understand what a prospectus is.

Section 2. (70) defines “prospectus” as any document that is referred to or issued as a prospectus, including a shelf prospectus and a red herring prospectus, as well as any notice, circular, advertisement, or other document that solicits public offers for the subscription or purchase of any securities of a body corporate;

A prospectus is any written document used by a firm to invite the public to subscribe to, buy, or invest in its securities. A prospectus includes details on the company’s financial standing, its directors, the memorandum’s signatories, the items of the public offering, any additional charges that were incurred, changes to the company’s finances, etc. A corporation must give accurate information in the prospectus or risk being held accountable for misrepresentation and fraud.

When a firm does an IPO (Initial Public Offering) or subsequent offer, a shelf prospectus is filed with the registrar and is accompanied by an information memorandum. From the starting date of the deal, it is valid for a year. Without releasing a new prospectus, a shelf prospectus is used to offer securities for subscription in one or more issues over a predetermined period.

Now, let’s say a firm files a red herring prospectus and, following the completion of the offer, submits a detailed report with SEBI and the registrar because it is unsure about the quantity or price of the securities.

How exactly is a company’s abridged prospectus useful? Let’s examine.

An abridged prospectus’s importance

1.Time is saved.

The investment industry moves quickly, therefore decisions frequently need to be made right away. An abbreviated prospectus makes this process more effective. Additionally, the prospectus will only contain the crucial details that will have an impact on your investment decision. Your research becomes much easier as a result.

Retail investors also benefit from this factor. Retail investing may not be your full-time profession, and you may not have the time to review a lengthy portfolio. A succinct, abridged portfolio can help you in this situation as well.

2. It facilitates business operations.

A firm is required by law to submit a prospectus before issuing or offering for sale to the general public any type of security. Companies may run into issues with this, particularly if they need to raise funds rapidly. The corporation faces fines of up to Rs. 50,000 for each issue of failure to publish a prospectus prior to an offering. On the other hand, they can save time by complying with the mandate by filing an abbreviated mandate. Additionally, this could help the business save money and resources. The most important thing to realise in this situation is that a prospectus serves as both a legal requirement and a marketing for the company’s offering. Therefore, a shortened, abridged prospectus may hinder their marketing efforts but be useful when they urgently need funds.

3. A prospectus is a fairly lengthy document, and in today’s fast-paced world, it is unrealistic to expect investors to read it cover to cover. One requires concise, accurate, and timely information regarding the business. An abbreviated prospectus is created to do this. It is only five sheets long and is entirely made up of bullet points.

4. No form of application for the purchase of any securities of a company shall be provided, according to Section 33 of The Companies Act 2013, unless such form is accompanied with an abridged prospectus. This suggests that a corporation cannot take offers from the public and that the public cannot invest in a company without first receiving an abridged prospectus. It has been made mandatory to give investors the ability to understand the nature, rights, and consequences that would result from investments, protecting the investor in the process.

The essentials of a Abridged Prospectus

Let’s discover more about what a Abridged Prospectus would contain.

The prospectus must be sent on A4 paper with Times New Roman as the default font. There must be a line spacing of 1.0 and a font size of 10.
There can be no more than five pages in the document. This is due to the possibility that having more pages might make it less concise and clear.
Publicizing the condensed document is necessary. The Securities and Exchanges Board of India (SEBI) should also receive it.

Contents of Abridged Prospectus

All of the company’s information should be included in thabridgedrospectus, which assists in identification. This contains the whole name of the business, brand names, the logo, etc. Investors can distinguish between businesses and brands with similar names by doing this as well.
The prospectus also needs to include information about their directors. This information is typically already public knowledge because a listed firm is required to alert investors of changes to the board of directors. However, reiterating the same in the prospectus enables investors to assess their choice using just one document.
The prospectus should also include all the information on the offered security. If it’s a stock offering, for instance, it should detail the class to which the shares belong and their voting rights. On the other hand, if it’s a bond offering, the prospectus needs to include details like the face value, tenure, and coupon rate. In other words, an abbreviated prospectus need to provide all the technical details about the offering in one place.
There will also be a minimum offering amount for each offer. This can be the bare minimum of shares that should be purchased in the stock offering. The minimum number of bonds you should purchase in a bond offering could be the same.
Information on application fees and other costs associated with the offer should also be included in the prospectus.
An abbreviated prospectus must also list the offering’s underwriters.
Reports on the company’s audited profits and losses will also be included. The investors’ decision to invest in the business will be aided by this.

When is it not required to be issued?

An abbreviated prospectus is not required to be attached to the application form in the following circumstances:

If the shares or bonds cannot be obtained by the general public.
If a genuine invitation to sign an underwriting agreement is obtained.

Penalty for failing to issue it

According to section 33 of the Companies Act, a firm would be penalised Rs. 50,000 for each default if it fails to produce an abridged prospectus as required.

Conclusion:

A prospectus is designed to give thorough details about a company’s offering. However, the prospectus is frequently lengthy and intricate. Due to this, SEBI has ordered that businesses also give investors a much shorter and simpler prospectus. To ensure that your investments are in line with your investing horizon, make sure you read them carefully.

References

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November 17, 2022