What is an Abridged Prospectus?

An abridged prospectus is a memorandum containing all salient features of the prospectus as specified by SEBI, as defined in Section 2(1) of the Indian Companies Act, 2013. It is used by the company to communicate and invite the public to invest in or purchase its securities.

An abridged prospectus must include information about its directors, the financial position of the company, duties of directors, objectives of the public offer, names of signatories to the memorandum, changes in the company’s finances, and any additional charges created.

Let us read more about the abridged prospectus, why it is needed, types of abridged prospectus, and more in detail. Keep reading!

Why is a Prospectus Needed?

As per Section 30 of the Companies Act, 2013, a company needs to provide the contents of the memorandum stating the objective, members’ liabilities, signatories, the amount of the company’s share capital, and the number of shares subscribed by them, and the company’s capital structure when making an offer for the sale of its shares.

The investors use the information provided in the abridged prospectus to make an informed decision about the company. The prospectus must include information about its promoters, finances, and its area of operations.

Types of Abridged Prospectus

The following are the different types of prospectuses:

• Deemed Prospectus – When a company intends to issue securities through an intermediary instead of following SEBI guidelines, it requires a deemed prospectus. When it issues securities, whether through a broker or a merchant bank, the company must issue a deemed prospectus of an offer for sale.

• Red Herring Prospectus – A red herring prospectus must be filed with the registrar before the offer. It doesn’t provide information about the prices and numbers of securities. The registrar must receive the red herring prospectus three days before the offer and subscription period.

• Shelf Prospectus – When a company or public financial institution offers securities to the public, it issues a shelf prospectus. It must specify the validity period, which should not be more than one year. The validity period begins as soon as the first offer is made.

• Abridged Prospectus – The abridged prospectus contains all the salient features of the full prospectus. It includes all the information, including its financial history, its promoters, and its offer for sale.

Importance of Abridged Prospectus

An abridged prospectus serves several purposes, which makes it important for investors. Below are a few of the important points you must know about the abridged prospectus:

• An abridged prospectus helps get information about a company quickly, accurately, and concisely.
• It provides the most important information required to decide on your investment.
• As per Section 33 of The Companies Act, 2013, a company can’t accept offers from the public, and the public can’t invest in the company unless it receives an abridged prospectus.

Elements of Abridged Prospectus

A company must meet the following criteria before publishing an abridged prospectus:

• The abridged prospectus must be typed in Times New Roman font on A4 paper with a font size of at least 10 points.
• The line spacing must be at least 1.00 with typical letter-spacing at 100% scale.
• The font size for headings and subheadings can be modified if needed.
• The heading should use capital letters, boxes, and bold fonts.
• The main subheadings should be bold and enclosed in boxes.
• Other subheadings should be bold and underlined.
• Various headings and subheadings should be numbered.
• The order of the content must not be changed.
• If the application is torn, attach it without the information getting affected.
• To make information more accurate and clear, tables and pointers must be used.
• It must provide information about how to fill out the form, make a payment, and deal with risk factors. This information must be presented in pointers, with each line starting on a new line.
• "IN THE NATURE OF FORM 2A – MEMORANDUM CONTAINING SALIENT FEATURES OF THE PROSPECTUS” – This sentence must be in bold at the top of every page.
• Risk factors should be mentioned to effectively express any associated risk with the situation.
• A reference to the prospectus can be made wherever needed.

Conclusion

An abridged prospectus offers information in simplified form, providing all the important details. It helps investors to make quick and informed decisions. It is essential for new investors who are looking for detailed information related to the company’s finances, directors,  its promoters, and its offer for sale.