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Question
Justify the following statement.
The prospectus is an important document issued by a public company.
Solution
(1) A prospectus is a legal document because it is an ‘invitation to offer‘. It consists of the terms and conditions on the basis of which shares and debentures are issued to the public and prospective investors. This document officially informs the public about the formation and establishment of a public limited company. The different aspects of the company, viz. its aims, objects, financial history, capital structure, and profitability of the proposed company.
(2) A prospectus is a document (i.e. medium) through which the company creates impressions and approaches the public to invite them to buy its shares and debentures. The company in the form of prospectus creates a permanent and authentic record of the terms and conditions on the basis of which the public have been invited to purchase its shares and debentures. By filing a copy of the prospectus with the Registrar of the Companies, before issuing it to the public, a public limited company fulfills the statutory requirements.
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