What is an Abridged Prospectus? - A Complete Guide | Espresso

What is an Abridged Prospectus?

According to section 2 of the Companies Act, 2013, the definition of a prospectus is “any document that is described or issued as a prospectus.” It is an advertisement, circular, notice, or document informing the public that the corporate body’s securities are up for sale.

OPEN FREE ACCOUNT

IN 15 MINS*

To qualify as a prospectus, a document must meet any of the two criteria from the following:

  1. It must invite the public to such an event.
  2. It should either invite subscriptions to public shares or debentures or deposits.
  3. The document must be issued on behalf of or by the company.
  4. The document should describe the company’s shares, debentures, or other financial securities.

It is mandatory for every public company traded on the stock exchange to file a prospectus. A private organisation does not need to submit the same. But, if the private company wants to change to a public firm, it needs to submit a prospectus.

This article will talk about a type of prospectus called the abridged prospectus, its need, and things that you need to know about this prospectus.

What is an Abridged Prospectus?

The term ‘abridge’ means to shorten something without tampering with the sense of the original. The shortened version of an otherwise voluminous document, with all the details specified by SEBI, is an abridged prospectus.

The abridged form of a prospectus is a memorandum. It contains all the salient features mentioned by the Securities and Exchange Board of India. In addition, it summarises information about the company, making it easier for investors to make decisions. To issue an application form for the sale of securities, a company must release an abridged prospectus as well.

The Need for an Abridged Prospectus

  • Generally, a prospectus is a comprehensive document. It contains a lot of information. You cannot expect an investor to read the entire document in this fast pacing world. There is a need for quick, crisp, and relevant information. For this purpose, an abridged form of a prospectus is prepared. It contains 5 pages with the information listed in bullets.
  • According to Section 33 of the Companies Act, 2013, a company cannot issue a form for the application of the purchase of securities without issuing an abridged prospectus. It means that a company cannot accept offers from the public, and the public cannot invest in the company till the abridged prospectus is received. In addition, companies must specify the rights, outcomes, and nature of the investment to protect the investor’s interests.

Points to Remember About an Abridged Prospectus

  • It must disclose relevant information like the issuer’s name and logo, date of opening and closing, details of promoters and directors, etc.
  • It must be five pages long and printed on A4 paper.
  • There should be no change in the order of contents.
  • The information must be presented in the form of tables and pointers to make it clear and more accurate.
  • If there are any risks involved in the situation, the risk factors need to be mentioned.

Other Types of Prospectus

The Companies Act 2013 has divided prospectuses into four types including, the abridged prospectus. The other types of prospectuses include: 

1. Deemed prospectus

When a company agrees or allows allotment of the company’s financial securities, the document describing the same is known as a deemed prospectus. It shares details of the offer to the investors.

2. Shelf prospectus

The document is filed when any financial institution or company offers one or more securities to the public. It is valid for a maximum of one year. As the first offer commences, the validity period starts. The company does not need to release more prospectuses for future offers.

3. Red herring prospectus

This type of prospectus does not include details about the specific price or volume of securities that have been put up for sale. It is submitted to the registrar before the offer.

Summing up

The abridged prospectus contains only the most vital information about a company’s offer for its financial securities. It ensures that investors have all the essential details of the company’s issue to make the right investment decisions.

Share Market Knowledge Centre

Related Articles

  • Depository Participant: What does it mean in IPO?

    In the last few years, Initial Public Offerings (IPO) have come into public focus with many bumper listings. In addition, the simplification of the IPO application process has made IPOs extremely popular. Earlier, brands needed to file and submit an IPO application physically. But with increasing participation in the primary market and its growth, companies can now do it from the comfort zone of their homes.

    ...Read More
  • What is DRHP (Draft Red Herring Prospectus)

    The year 2021 witnessed the launch of the Initial Public Offerings or IPOs of several popular companies in India. Spanning across sector lines, the response to most of these IPOs has underlined the significance of a company going public and sharing its ownership with a wider class of stakeholders.

    ...Read More
  • Frequent Queries Raised in IPO

    One of the major talking points in the year 2021 was the Initial Public Offerings or IPOs of several leading companies in India. From giants in the food retail industry to companies offering digital payments, the year has seen the launch of IPOs across various sectors - IPOs that created almost unprecedented buzz and attracted the interest of veteran investors and first-time investors alike.

    ...Read More

Frequently Asked Questions

The abridged prospectus helps to protect the rights of investors. Companies must issue the same with the application form to inform investors of their rights, outcomes, and consequences before investing in a particular company.

Yes. There are certain exceptions where the company does not need to send out an abridged prospectus with the application form. These exceptions are:

  • If the shares or debentures are not offered to the general public
  • If investors receive a bonafide underwriting agreement
  • Depending on the rights issue of shares or debentures
  • In respect of shares or debentures that are similar to the ones available on a stock exchange

An IPO prospectus informs potential shareholders about the company’s operations and business model. An ETF prospectus tells prospective investors of the fund’s history, goals, portfolio, fees, charges, and other financial details.