• HDFC securities
• 03 Apr 2023
• Knowledge Centre

 

 

A prospectus is a formal document that provides details about the shares or other securities offered to the public by a company. In India, if any company is aiming to raise capital by offering its stocks to the public, it must file the prospectus with the capital market regulator Securities and Exchange Board of India (SEBI). The prospectus can be in the form of a circular, notice, or advertisement.

What is Deemed Prospectus?

Deemed Prospectus is a document defined under Section 25 (1), of the Company’s Act. As the name indicates, this document is just deemed to be a prospectus and is not considered a full-legged prospectus.

Generally, when a company offers to sell its shares, it is required to file a prospectus with regulatory authorities. However, a document that is not specifically labeled as a prospectus may contain the same or similar information as a prospectus and may be used to solicit investments from the public. This detailed document addressed to the public is deemed to be a prospectus.

Deemed prospectus is important when a company is looking to issue its stocks via an intermediary. The intermediary can be anyone – another company, issuing house, or a merchant bank – to whom a company allots its shares or securities for offering those for sale. At such time, the intermediary makes a document of Offer for Sale.

For an offer for sale made by a company to be considered a Deemed Prospectus, it should meet the following two conditions:

• Condition 1

The offer for sale made by a company will be considered to be Deemed Prospectus if the involved intermediary makes an offer to the general public within six months of the initial sale. Here it is assumed to the company is looking to raise capital from the sale. Hence, either the company or the intermediary needs to release all information about the stock issuance to SEBI and the public at large.

• Condition 2

If a company makes an offer for sale to an intermediary without receiving any consideration for the stocks until the intermediary makes an offer for sale, the offer for sale will be regarded as a Deemed Prospectus. The Securities and Exchange Board of India (SEBI) considers this to be an attempt by the company to issue stocks to the public through an intermediary without filing a prospectus. Consequently, the intermediary must file an offer for sale or Deemed Prospectus.

If either of these conditions is met, the company’s offer for sale to the intermediary will be considered a Deemed Prospectus. The same rules and regulations that apply to the company's prospectus will apply to the Deemed Prospectus.

Furthermore, even if the intermediary issues the offer for sale, the Deemed Prospects also expands responsibility to the original issuer of stocks. The purpose of deeming a document to be a prospectus is to ensure that investors have access to accurate and complete information about the securities they are investing in and that they are not misled by incomplete or inaccurate disclosures.