Definition of Prospectus

The term prospectus refers to a mandatory document which contains an

invitation to subscribe for shares, issued by all the companies. It is a legal
document, wherein the offer their securities for public for purchase. It must be
in written format, i.e. an oral invitation to offer, for the purchase of shares will
not be regarded as a prospectus. It includes the red-herring prospectus, shelf
prospectus, abridged prospectus or any other circular or notice, that invites
the public to subscribe for its shares.

Prospectus is the key document of the body corporate, on which the

investment decisions of the prospective investors relies. So, it is mandatory for
the companies to make disclosure of all the material facts and also prohibits
variations in the terms and conditions of the contracts, as any misstatement or
concealment of facts can cause heavy loss to the investing public.

Definition of Statement of Lieu of Prospectus

The Statement in Lieu of Prospectus is a document filed with the Registrar of

the Companies (ROC) when the company has not issued prospectus to the
public for inviting them to subscribe for shares. The statement must contain
the signatures of all the directors or their agents authorised in writing. It is
similar to a prospectus but contains brief information.

The Statement in Lieu of Prospectus needs to be filed with the registrar if the
company does not issues prospectus or the company issued prospectus but
because minimum subscription has not been received the company has not
proceeded for the allotment of shares.

Where a public company does not invites public to subscribe for it shares but arrange
money from private sources, it needs not issue the prospectus to the public. But the
company has to get its prospectus registered three days before the allotment of shares.
Thus, the company not inviting public to subscribe, prepare a draft prospectus which
contains the information given in schedule III of the act, such a draft prospectus is
knows as a statement in lieu of prospectus.

Provisions: Only public company which does not invite public for subscription can
issue this prospectus. Responsibility will be same as that when actual prospectus is
issued.

When issued: Section 70(1) requires a public company having a share capital to file
with the Registrar of Companies a statement called Statement in lieu of prospectus
in the following cases:
If a company does not want to issue a prospectus to the public for subscription of the
shares, this statement is required to be issued to the public for necessary information.
It must be signed by every person named in it as director or by his agent authorized in
writing: The nature of the information of this document is more or less similar to that
given in the prospectus. A copy of this statement must be filed with registrar within
prescribed time. This provision does not apply to private company.