Define prospectus and mention any two contents to be stated in prospectus.

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Model Answer

Definition of Prospectus

A prospectus is a formal public document issued by a company (usually a public limited company) to invite the general public to subscribe to its shares or debentures. It acts as both an advertisement and a disclosure tool, providing detailed information about the company’s financial health, objectives, and the terms of the issue. In Nepal, a prospectus must comply with the Companies Act, 2063 (2006) and regulations set by the Security Board of Nepal (SEBON) for public issues.

Two Key Contents of a Prospectus

1. Particulars of the Company

   • Registered office address and legal status (e.g., public limited company).
   • Authorized and issued capital, including the breakdown of share types (e.g., equity shares, preference shares) and their face value.
   • Names and qualifications of directors, managers, and key officers, along with their remuneration details.
   • Objectives of the company, outlining its main business activities and future plans.

2. Particulars of the Issue

   • Type of securities offered (e.g., equity shares, debentures) along with their issue price, face value, and any discount/premium.
   • Total number of shares/debentures to be issued and the amount of capital to be raised.
   • Terms of allotment, including minimum subscription requirements and the procedure for allotment.
   • Rights of shareholders, such as voting rights, dividend policies, and repayment terms (for debentures).

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Note: The prospectus must also include audited financial statements for the past three years, risk factors, and legal declarations to ensure transparency and compliance with Nepal’s regulatory framework.