When companies seek to raise capital from the public, the usual route involves issuing a prospectus, a formal document vetted by regulators and filled with detailed disclosures about the firm, its financials, and the securities on offer. But not all offers are made through this direct approach. Increasingly, firms are using intermediaries, merchant bankers, financial institutions, or selling shareholders to list their shares. The result is an alternative route called a deemed prospectus.
Under Section 25 of the Companies Act, 2013, a deemed prospectus is any offer document issued by a third party usually not the company itself when selling shares to the public. Though not labelled a “prospectus”, the document carries the same legal obligations, protections, and liabilities.
But here’s the difference: the structure is different, and the risks for individual investors can be higher.
What is a Deemed Prospectus
A deemed prospectus isn’t a separate or new type of document. It refers to any offer document released when securities originally allotted to an intermediary are later offered to the public. Though the issuing company is not directly behind the public offer, the document still shares the same disclosure obligations and liabilities as a regular prospectus. The offering is treated by the law as if it were being made directly by the company itself.
When Deemed Prospectus Comes in to Play
A document is considered a deemed prospectus under Indian company legislation if certain conditions are satisfied. Section 25(1) of the Companies Act, 2013 specifies two fundamental conditions for this:
Case one: When a company issues securities to an underwriter where the underwriter is to re-sell the shares to the public within six months after the issuance, the document it uses to sell the shares in such a case is considered to be a prospectus.
Case two: Similarly, if the company has received no compensation for those shares by the time that intermediary offers them to the public, then the sale offer is then deemed as a prospectus under the law.
Both are meant to prevent potential end-around loopholes that could allow companies to bypass the regulatory requirements tied to direct public offerings.
Further, the two sets of documents are governed by the Securities and Exchange Board of India (Sebi) and must comply with strict disclosure norms.
Says Abhishek Kumar, a Sebi-registered investment analyst, “Though on the paper both contain similar legal protections and liability clauses, the retail investor is exposed more on practical ground in the event of a deemed prospectus.”
He points to compressed timelines, with offers option for just one trading day, and a significantly lower retail quota of just 10 per cent in most cases, compared to much higher allocations in fresh public issues.
“This structure, combined with a floor-price mechanism, introduces sharper price volatility,” he adds.
Jitendra PS Solanki, a Sebi-registered investment advisor (Sebi RIA) adds: “In theory, protections are similar, but in reality, the level of transparency may be lower. The fundamentals of the issuing company may not have undergone the same depth of scrutiny as in a standard prospectus.”
Are Deemed Prospectus Riskier?
The very structure of the transaction is a major point of concern. Abhijit Chokshi, founder of Stocifi and a Sebi RIA, lists out three criterion that make them relatively risky for the retail investor.
Diluted Accountability – The offer is made by intermediaries, not directly by the company, which makes it harder to pin liability for false or misleading statements.
Indirect Issuer Involvement – The company doesn’t control the offer directly, which can impact disclosure accuracy and pricing.
Misunderstood by Retail – Most retail investors don’t recognise the difference. They assume the offer is coming from the company itself.
Rahul Agarwal, founder of Advent Financial, highlights another key point: conflict of interest. “The intermediary’s incentive is to maximise its own return. That influence can distort the offer’s pricing, valuation, and even its timing none of which may benefit the investor,” he adds.
What’s Included in a Deemed Prospectus
Although a deemed prospectus is being released by a middleman, the equivalent market exposure that you get would have to be equal to what you receive from a regular prospectus. It presents crucial information about the company to help investors evaluate the proposed offering clearly and confidently.
The key disclosures generally include:
Business identity: Name, address, and identifying information of the company.
Management and promoters: Name and position of executive directors and key promoters.
Shareholding analysis: Ownership structure and changes in the recent past.
Security specifics: Type of securities on offer, rights attached, and voting provisions.
Minimum investment: The lowest bid or application size allowed.
Underwriters: Names of entities backing or managing the sale.
Financials: Summarised audit reports, including profit and loss figures.
The goal is to ensure that even when the sale is routed through a third party, investors receive clear, verifiable facts before putting money at risk.
How Can Retail Investors Spot One
Understanding whether an offer is made via a deemed prospectus isn’t always straightforward, but there are clear signals.
Says Kumar: “Look for phrases like ‘Offer for Sale’ or references to Section 25 on the cover page. You will see a selling shareholders table, and sections like ‘Objects of the Issue’ or ‘Minimum Subscription’ will often be missing. That’s a giveaway this is not a fresh capital raise. The money goes to shareholders, not the company.”
Adds Agarwal: “If the company isn’t directly receiving the proceeds, and an intermediary is the one selling, it’s almost certainly a deemed prospectus.”
Solanki points out the importance of examining who’s behind the offer. “If the securities are being issued by an intermediary and not the company directly, it’s a clear sign. Investors should scrutinise the intermediary’s credibility and the true purpose behind the offer,” he says.
What Should Investors Look For in the Offer Document
Retail investors navigating a deemed prospectus should dig deep deeper than they might for a regular initial public offering (IPO).
Kumar recommends starting with the Selling Shareholders section. “Understand who is exiting, then head to the risk factors. These are often boilerplate in regular IPOs but in deemed prospectuses, they sometimes mask red flags,” he says.
Solanki advises verifying the intermediary's track record. “Also check how the proceeds are being used. If it’s just an exit play for early investors, you need to question the long-term growth story,” he says.
Chokshi advises a few points for better scrutiny. “Look for promoter exits, as this can signal eroding confidence. Read the fine print under “Use of Proceeds. Pay attention to any legal disputes, regulatory issues, or sudden changes in management structure buried in Risk Factors,” he says.
Agarwal adds: “Terms of the Offer and the relationship between the intermediary and the company must be examined. If the intermediary acquired shares at a steep discount, investors should be cautious.”
Deemed Prospectus’ Link With Offer For Sale
At a surface level, both prospectuses follow the same disclosure guidelines under Sebi’s Issue of Capital and Disclosure Requirements (ICDR) Regulations. But structurally, they diverge.
“A deemed prospectus is created when intermediaries first receive securities and then offer them to the public, usually under an Offer for Sale. While the disclosure obligations largely remain the same, certain requirements like minimum subscription clauses don’t apply,” says Kumar.
Chokshi lists the differences. A regular prospectus implies fresh capital infusion into the company, while a deemed prospectus usually implies no fresh funds, just a reshuffling of existing ownership,” he says.
