A prospectus is issued by a company when it looks to raise funds from the public. The prospectus consists of detailed information about the company’s financials, management, and the risks associated with the company.
In some cases, the company may choose to use an intermediary to whom the shares are allotted first, who will then sell them to the public through an offer for sale. In such cases, a legal document named the deemed prospectus is issued.
The blog provides a detailed explanation of the deemed prospectus and its differences from a traditional prospectus.
The deemed prospectus is a legal document that a company is required to issue when it chooses to first allot shares to an intermediary who then sells them to the public via an offer for sale.
A deemed prospectus ensures that investor interests are protected while maintaining transparency, providing the same level of information to the investors as a traditional prospectus would. Also, it ensures that the company issuing the shares is liable for the disclosures in the document.
The document issued by a company is treated as the deemed prospectus when either of the following conditions is met -
Condition 1: The company allocates the shares to an intermediary who then offers the same to the public via an offer for sale within 6 months of the allotment.
Condition 2: The company has received no payment for the allotted shares at the time of the intermediary making the offer of sale public.
Section 25(1) of the Companies Act, 2013 states that when a company allots shares or securities with the purpose of the securities being offered to the general public, any document through which the offer of sale is made can be considered to be the deemed prospectus of the company.
Let’s look at the key differences between a prospectus and the deemed prospectus of a company.
Point |
Prospectus |
Deemed Prospectus |
Meaning |
It is a document that a company issues offering shares or securities directly to the general public |
It is a document issued by the intermediary that issues the shares of the company to the public |
Purpose |
To directly raise funds from the public |
To indirectly offer securities to the general public |
Issuer |
It is issued directly by the company allotting the securities |
It is issued by the intermediary to which the securities have been allotted |
Legal Basis |
Section 26 of the Companies Act, 2013 |
Section 25 of the Companies Act, 2013 |
Liability |
The company is held liable |
Though the intermediary issues the document, the company holds liability |
Regulatory Compliance |
Entirely compliant with the Companies Act and SEBI |
Must comply with all the regulatory requirements of a traditional prospectus |
Disclosure |
Direct disclosure |
Indirect disclosure |
A deemed prospectus contains the following content:
The deemed prospectus is important when a company wants to issue shares or securities to the general public through an intermediary.
However, a deemed prospectus is considered and regulated just as the regular prospectus, where the company is held liable for the disclosures in the prospectus.
The deemed prospectus contains all the key information about the company, the issue, and the securities offered. Although the offer for sale is issued by an intermediary, the deemed prospectus helps to keep the company allotting the shares liable and accountable.
We can understand how the deemed prospectus comes into play better with the help of an example:
Company ABC wants to allot shares to the general public. To do this, the company allocates shares to an intermediary.
The company issues an offer for sale document and allots the shares to a merchant bank in June 2025.
The merchant bank makes the offer for sale to the public in September 2025, which allows the shares of ABC to be allotted to the general public not directly through the company but through the merchant bank. In such a scenario, the offer for sale document becomes the deemed prospectus of the company.
Since the merchant bank made the offer for sale to the public within six months of being allotted the shares by company ABC. The offer for sale document becomes the deemed prospectus.
Additionally, the offer for sale document would become the deemed prospectus if company ABC didn’t receive any consideration for the allotted securities till the date when the merchant bank makes the offer of sale to the public.
If company ABC wanted to allot shares directly to the general public, it would have to issue a prospectus and meet the regulatory requirements and guidelines set by SEBI.
Failure to comply with Section 25 of the Companies Act of 2013 may result in: