What is a prospectus of a company? Discuss its nature and importance.
Prospectus of a company is nothing but a company's portfolio.
A prospectus defines the aims and objectives of a company. It also includes all the information about the Company and the services they provide. This gives an insight into how a company provides its services to their clients.
The prospectus contains details a.o. about the (structure of the) fund, the investment policies, risk factors, the shares offered, selling restrictions, the redemption or repurchase of shares, tax issues, the calculation of the net asset value (NAV) and fees and costs. Also important is the disclosure of information with respect to all parties involved, including their relationships.
A prospectus should give a clear view of these issues and may not be misleading. Said aspects (may) play an important role when reviewing an investment fund and especially when assessing whether or not investments should be made in such fund. A prospectus should be prepared with the highest standards of care and accuracy.
The prospectus of a company serves the following purposes
(i) Prospectus contains the summary of the company’s past history and present operation.
(ii) It reflects the future programmes and prospects of the company.
(iii) It serves as an invitation to the public to subscribe to the shares and debentures of the company.
(iv) It provides a legal document of the terms and conditions on which shares and debentures have been issued.
(v) It identifies the persons who can be held responsible for any untrue statements made in it.