Consider the following statements about the method of offer through prospectus:
(A) Offer through prospectus involves inviting subscription from the public through the issue of a prospectus.
(B) Under offer through prospectus, securities are not issued directly to the public but through intermediaries.
(C) Under offer through prospectus, the issues may be underwritten.
(D) The contents of a prospectus have to follow SEBI disclosure and investor protection guidelines.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (C) and (D) only
(A) Offer through prospectus involves inviting subscription from the public through the issue of a prospectus. — Correct. A public company invites the public to subscribe by issuing a prospectus.
(B) Under offer through prospectus, securities are not issued directly to the public but through intermediaries. — Incorrect. Issuing securities through intermediaries such as issuing houses or stock brokers is the method of offer for sale. A prospectus appeals to investors directly.
(C) Under offer through prospectus, the issues may be underwritten. — Correct. Such issues may be underwritten. They must also be listed on at least one stock exchange.
(D) The contents of a prospectus have to follow SEBI disclosure and investor protection guidelines. — Correct. The prospectus must follow the Companies Act and SEBI disclosure and investor protection guidelines.
NCERT (Pre-rationalised Edition): “1. Offer through Prospectus: Offer through prospectus is the most popular method of raising funds by public companies in the primary market. This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be underwritten and also are required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines.” “2. Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to the investing public.” |