Objectives of Prospectus
The prospectus is an important document of Public Limited Company. It is a document containing exhaustive information about the company. By using this document, promoters invite people to buy shares or debentures to raise the required fund of the company. It is an invitation to the public for subscribing to the shares or debentures of the company. Private limited companies are severely prohibited from issuing prospectus and they cannot invite the public to pledge to their shares. So from the idea of the prospectus, the importance of the prospectus in public limited company is easy to understand. Only public limited companies can issue prospectus. Thus, it is an open invitation extended to the public at large.
However, we tried to find some points regarding the objectives of the prospectus are as follows:
- Collection of Capital
As we know, capital is the blood of any organization, though Private Limited Company arranges its fund by itself. On the other hand, the Public Limited Company can’t. For this reason, a public limited company can raise its capital by selling shares and debentures at various rates. The prospectus is invited by the people to purchase shares or debentures. To bring to the notice of the public that a new company has been shaped. It informs the company about the structure of a new company. This is the prospectus which holds the rate of return of the shares or debentures of the respective company and it also holds the potentiality of the company by explaining the future plans and policies of the company.
- An obligation of Companies Art
According to the Companies Act, every Public Limited Company is being obligated to issue prospectus and need to submit it to the registrar. To conserve a reliable record of the terms and allocation on which the public have been invited to buy its shares or debentures. That’s why it is mandatory for all the public limited company. It serves as written proof about the terms and conditions of issue of shares or debentures of a company. It induces the investors to invest in the shares and debentures of the company.
- Importance to Potential Share-holders
It helps the potential investors to take proper decision to invest their money in the respective company as it describes the policies, financial conditions and earning a rate of the company. To protect that the directors of the company recognize a liability for the statements in the prospectus. It describes the nature, extent and potential prospectus of the company. It maintains all reliable records on the matter and makes the directors accountable for the misstatement in the prospectus.
Fundamentals of a Prospectus
A prospectus should include the following details:
- There must be an appeal submission to the unhindered public.
- The appeal must be made on behalf of the company or future company.
- The application must be pledged or purchase.
- The request must transmit to shares or debentures.
On the basis of the above-mentioned discussion, it can be said that prospectus is very much important to let the people know about the company clearly. Prospectus invited the investors to purchase shares and debentures and helps to raise capital for the company.