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This article will give you an insight of abridged prospectus, its purpose, and importance along with the important components contained in abridged prospectus.
What is Abridged Prospectus?
As per section 2(1) of companies Act 2013, “abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.
So, it is a document, which contains the summary of a prospectus.
It is aimed to summarize the prospectus, containing details specified by Securities and Exchange Board of India (SEBI), without ignoring any important information.
Prospectus is a detailed document contains terms and conditions, inviting offers from public for purchase of securities (shares/debentures) of a company.
Read here in detail about Prospectus and its types.
Why Abridged Prospectus is Required?
Section 33 of companies Act. 2013, states that no form of application for purchase of any securities of a company shall be issued unless such form is accompanied by an abridged prospectus.
Actually prospectus is basically an extensively detailed document issued by a company that gives details about the company. Prospectus, being voluminous, makes it difficult to read it completely.
Therefore, an it provides solution to this. It is the compact form of prospectus, making it quick and easy for readers to understand.
A company cannot issue an application form for the issue of the share until an abridged prospectus is attached to it.
When it is not required to be issued?
You do not need to attach an abridged prospectus to the application form under following circumstances:
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If the shares/debentures are not proposed to the public.
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In case bonafide invitation to enter into an underwriting agreement
Purpose and importance of abridged Prospectus
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The basic purpose of it is to secure the rights of investors. It has been made compulsory with application form so that investors can know their rights, consequences, and outcomes of investing in a particular company.
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It saves the cost of public issue of capital, as it is shorter than prospectus.
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It saves the time of investors.
Components of Abridged prospectus
As told earlier, no company can issue an application form to the investor until abridged prospectus is attached to it.
There are some important requirements that abridged prospectus must fulfill to be attached with application form. These requirements are:
Basic information as per SEBI circular CIR/IMD/DF-1/19/2012 dt. July 25 2012.
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It must be:
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Printed on A4 size paper,
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Written in ‘Times new Roman’,
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The font size must not be less than 10,
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Line spacing must not be less than 1.00
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There should be no condensation and normal character spacing should be with 100% scale.
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Font size may be changed for headings and subheadings, if needed. However main headings should:
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Have uppercase letters,
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Be in bold,
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Be in boxes.
Main subheadings should:
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Be in bold,
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Be in boxes.
Other subheadings should:
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Be in bold,
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Be underlined.
3. The numbering for various headings and subheadings should be continuous or with different types of numbering.
4. The sequence of contents must not be changed.
5. Attach application form in a way that none of the information is damaged, in case of tearing application form.
6. To make information precise and clear, tables and pointers may be used.
7. It must include the instructions regarding:
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Filling up the form
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Payment
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Risk factors.
And such information should be in pointer form, beginning each one in a new line.
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The top of every page shall contain, in bold, the below statement.
“IN THE NATURE OF FORM 2A – MEMORANDUM CONTAINING SALIENT FEATURES OF THE PROSPECTUS”
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Risk factors should be provided, to clearly convey any associated risks with the issue.
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A reference can be made to the prospectus, wherever necessary.
Penalty for not issuing it
As per section 33 of companies Act, if a company fails to issue abridged prospectus as stated in section 33, it will liable be charged Rs.50,000 for each default.
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