What is shelf prospectus?

What is a prospectus?

Definition as per companies act, 2013 [section 2 (70)]

prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement, or other document inviting offers from the public for the subscription or purchase of any securities of body corporate. (source: MCA, Companies Act, 2013)

Explanation :

In simple words, the prospectus is a document published by the companies at the time of making a general offer to the public at large for subscribing to their securities.

What is Shelf Prospectus?

A shelf prospectus is a type of prospectus used by companies issuing multiple securities in a specific period of time(max period. 1 year). Let’s learn about shelf prospectus in detail.

Provisions of shelf prospectus are given in section 31 of the companies act, 2013.

Why do companies need shelf prospectus?

Let’s understand this by an example, suppose you run a public company. now, you need to raise funds via debentures. You decided to issue debentures subsequently as per your need over a period of time. According to the Companies Act, 2013, every time you issue a debentures or any other securities, you need to publish a prospectus before issuing those securities. Here, the concept of shelf prospectus comes into play.

A shelf prospectus means a prospectus with a given shelf life, Let’s understand it according to the above example. Now, besides issuing a new prospectus every time whenever you issue new debentures, you can issue a single prospectus at the time of the first issue, containing all the information about your future issue of securities. This prospectus will have a certain life which is maxed to one year, this is called the shelf life of the prospects. This shelf prospectus will expire at the time given in the prospectus or after one year whichever is earlier.

After issuing the shelf prospectus, the company can issue securities mentioned in the shelf prospectus without issuing a full-fledged prospectus. But, every time the company issues securities mentioned in the shelf prospectus, the company needs to file a document to the ROC (Registrar Of Company) called as an ‘information memorandum’ describing all the material changes that took place in the company.

Filing of shelf prospectus with the registrar of companies.

Any class or classes of companies, authorized by the regulations of the Securities and Exchange Board of India (SEBI) may file the shelf prospectus with the registrar.

When does the companies can file the shelf prospectus to ROC?

Companies can issue the shelf prospectus at the time of making the offer for the first time of issue of securities. Under this prospectus, companies should mention the period of validity for the shelf prospectus which should not exceed one year. The period of validity of such prospectus shall commence from the date of opening of the first offer of securities issued under this prospectus.

What is an ‘Information Memorandum’?

An information memorandum is a document describing all the material changes that took place in the company during the period of the previous offer of securities and the succeeding offer of securities. Here, material changes include, the creation of a new charge, a change in the financial position of the company, and any other new information related to the company.

If any person subscribed to the securities in advance by virtue of the shelf prospectus; then the company shall intimate the changes to such person and if a such person expresses the desire to withdraw his/her application then the company should refund all his/her money within 15 days. (note: Here person includes and body corporate also)

How to file an ‘Information Memorandum’?

According to rule 10 of the companies (prospectus and allotment of securities) rules, 2014, companies should file the information memorandum to the ROC within one month prior to the issue of subsequent offer of securities under the shelf prospectus.

According to the rule, the ‘Information Memorandum’ shall be prepared in the form PAS-2 and filed with the registrar along with the fee specified in the rule/act. (here, PAS stands for Prospectus and Allotment of Securities).