(1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus.
Explanation- As per 2(19B)"Information Memorandum" means a process undertaken prior to the filing of a prospectus by which a demand for the securities proposed to be issued by a company is elicited, and the price and the terms of issue for such securities is assessed, by means of notice, circular, advertisement or documents.
(2) A company inviting subscription by an information memorandum shall be bound to file a prospectus prior to the opening of the subscription lists and the offer as a red-herring prospectus, at least three days before the opening of the offer.
(3) The information memorandum and red-herring prospectus shall carry same obligations as are applicable in the case of a prospectus.
(4) Any variation between the information memorandum and the red-herring prospectus shall be highlighted as variations by the issuing company.
Explanation.- For the purposes of sub-sections (2), (3) and (4), "red-herring prospectus" means a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities offered.
(5) Every variation as made and highlighted in accordance with sub-section (4) above shall be individually intimated to the persons invited to subscribe to the issue of securities.
(6) In the event of the issuing company or the underwriters to the issue have invited or received advance subscription by way of cash or post-dated cheques or stock-invest, the company or such underwriters or bankers to the issue shall not encash such subscription moneys or post-dated cheques or stock-invest before the date of opening of the issue, without having individually intimated the prospective subscribers of the variation and without having offered an opportunity to such prospective subscribers to withdraw their application and cancel their post-dated cheques or stock-invest or return of subscription paid.
(7) The applicant or proposed subscriber shall exercise his right to withdraw from the application on any intimation of variation within seven days from the date of such intimation and shall indicate such withdrawal in writing to the company and the underwriters.
(8) Any application for subscription which is acted upon by the company or underwriters or bankers to the issue without having given enough information of any variations, or the particulars of withdrawing the offer or opportunity for cancelling the post-dated cheques or stock invest or stop payments for such payments shall be void and the applicants shall be entitled to receive a refund or return of its post-dated cheques or stock-invest or subscription moneys or cancellation of its application, as if the said application had never been made and the applicants are entitled to receive back their original application and interest at the rate of fifteen per cent from the date of encashment till payment of realisation.
(9) Upon the closing of the offer of securities, a final prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as were not complete in the red-herring prospectus shall be filed in a case of a listed public company with the Securities and Exchange Board and Registrar, and in any other case with the Registrar only.]
19 July 2024
An Information Memorandum (IM) and a Red Herring Prospectus (RHP) are both documents used in the process of raising capital through the issuance of securities, typically in the form of shares in a public offering. Here’s a breakdown of their differences, purposes, and the timeline for public applications:
### Information Memorandum (IM): 1. **Purpose:** - An Information Memorandum is a document prepared by a company seeking private investment or venture capital. It provides detailed information about the company's operations, financial performance, business model, risks, and potential returns to prospective investors. - It is primarily used in private placements or when seeking investment from a limited number of sophisticated investors or institutions.
2. **Content:** - Includes comprehensive details about the company's business, management team, financial statements, market analysis, growth prospects, and risk factors. - Typically, an IM does not contain specific details about the offering price or the number of securities being offered, as these are negotiated with potential investors.
3. **Distribution:** - Distributed to potential investors under confidentiality agreements to maintain confidentiality of sensitive business information. - Usually used in initial stages of fundraising before a firm decision on the structure of the offering is made.
### Red Herring Prospectus (RHP): 1. **Purpose:** - A Red Herring Prospectus is a preliminary prospectus filed with the Securities and Exchange Board of India (SEBI) and made available to the public when a company intends to make a public offering of its securities. - It provides essential information about the company and the securities being offered to potential investors.
2. **Content:** - Includes information required by SEBI and other regulatory authorities, such as details about the company's operations, financial statements, risk factors, objectives of the issue, proposed use of funds, management team, and legal disclosures. - Unlike an IM, a Red Herring Prospectus includes details about the number of securities being offered, the price range (or floor price), and other terms of the offering.
3. **Distribution:** - Made available to the public for review and scrutiny. - It is termed "Red Herring" because it contains a disclaimer in red ink stating that the document is a preliminary prospectus and that the company may revise the information or complete it before the final offer.
### Timeline for Public Applications: - **Public Application Timing:** - After filing the Red Herring Prospectus with SEBI and making it public, there is typically a waiting period (known as the cooling-off period) during which potential investors can review the document. - During this period, the company, underwriters, and regulatory authorities may conduct roadshows and marketing activities to generate interest in the offering. - The final issue price is determined based on investor demand and market conditions. - After the cooling-off period, the company files an amended prospectus (if necessary) and issues a final prospectus.
- **Application Period:** - The public can apply for shares during the application period specified in the final prospectus. - This period starts after regulatory approvals are obtained, and the final prospectus is issued, detailing the final offer price and terms.
In summary, an Information Memorandum is used in private placements for private investment, providing detailed information to potential investors. A Red Herring Prospectus, on the other hand, is a preliminary document filed during a public offering process, providing essential details about the securities being offered to the public. The public can apply for shares once the final prospectus is issued, specifying the offer price and terms after regulatory review and approval.
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