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Question
Explain the following term/concept.
Red Herring Prospectus
Solution
(1) A red herring prospectus is a first or preliminary prospectus is a document submitted by the issuer (company) as a part of a public offering of securities. Potential investors may not place buy orders for the securities based solely on the information contained within the preliminary prospectus.
(2) Red herring prospectus is an incomplete prospectus as it does not include complete information on the quality of securities offered and issued the price of securities being offered. It is usually issued by the newly established company at the time of Initial Public Offer (IPO) of the company. A company must file a Red herring prospectus with Registrar of Companies (ROC) at least 3 days prior to the opening of the subscription list and the offer.
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