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What is a deemed prospectus?

In finance, there are many legal documents that play a crucial role in ensuring transparency and investor protection. One such document is the deemed prospectus, which serves as a vital tool for investors seeking information about specific securities offered by a company.

In this article, we’re going to explore everything you need to know about what a deemed prospectus is.

Understanding a deemed prospectus

When companies try to raise capital by issuing securities to the public, they have to create and publish a prospectus, which is a source of information for their investors. These documents contain financial statements, business strategies, risks associated with the investment, and details about the management team. 

By providing a comprehensive overview, a prospectus helps investors make informed decisions by thoroughly understanding the issuer’s current financial health and future prospects.

A deemed prospectus, on the other hand, is not issued by the company itself, but is still considered a prospectus for legal purposes. It serves as a public offer document and contains crucial details about the investment that investors must treat at par with an actual prospectus.

For instance, if a company X wants to raise capital by issuing government bonds, they could choose to sell all of them to an investment bank, who subsequently sells them to the public. If this public sale happens within 6 months of the private sale, Company X is obligated to file a deemed prospectus to inform the public of potential risks in their convertible bond issue.

Key features of a deemed prospectus

Here are some key inclusions in a deemed prospectus:

  • Disclosure – It provides comprehensive information about the company, its financial performance, the offered securities, and any associated risks.
  • Investor protection – Ensures transparency and safeguards investors by providing accurate and complete information.
  • Compliance: Adheres to regulations set by financial authorities, ensuring compliance with governing rules.
  • Created by intermediaries – While not directly issued by the company, it is often prepared by an intermediary involved in the offering, such as an investment bank or a merchant banker.

When is a deemed prospectus used?

Deemed prospectuses aren’t used all the time. Here are some situations in which they might be a tad more common.

When intermediaries are involved

When a company decides to raise capital by offering securities to a limited group of investors, such as institutional investors or high-net-worth individuals, they may opt for a “private placement”. In such cases, the company may not be required to file a formal prospectus with regulators. However, if the same securities are then offered to the public within six months of private placement, a deemed prospectus becomes mandatory.

Essentially, a prospectus protects the interests of public investors who may not have been privy to the details of the private placement.

Offers for sale of existing stock

Sometimes, a company may wish to sell a large block of existing securities to the public. They can do this by selling the securities to an intermediary, such as an investment bank, who then offers them to the public through an offer for sale.

This offer for sale, which is a document, qualifies as a deemed prospectus. This is done, again, to ensure that retail investors (public) have at least as much information about the offer as if the company were making the offer directly.

Convertible warrants or options

A company might also indirectly issue shares to the public without explicitly marking them as an offer of shares. They might issue warrants or options that have an option to be converted into shares at redemption. If these warrants are then traded on a public exchange, the company has to issue a deemed prospectus.

When shares are issued overseas

Companies offering securities to investors in multiple countries may be required to comply with different regulatory regimes. In such cases, a deemed prospectus may be used to ensure that all investors, regardless of their jurisdiction, have access to the same information about the offered securities.

Are there any benefits to using a deemed prospectus?

Most companies use deemed prospectuses because regulators mandate them to. However, at a market scale, issuance of these documents before public offerings can actually make investments more efficient. Here are some benefits of using and issuing deemed prospectuses:

  • Increased investor confidence – By providing transparent and comprehensive information, deemed prospectuses promote investor confidence and facilitate informed decision-making.
  • Enhanced market efficiency – By ensuring compliance with regulations and promoting transparency, deemed prospectuses contribute to a more efficient and fair market environment.
  • Reduced risk of fraud – By providing investors with necessary information, deemed prospectuses can help mitigate the risk of fraud and protect investors from fake news, etc.


In conclusion, understanding deemed prospectuses can empower you to navigate complex security offerings. Even though companies are mandated to provide accurate information with respect to their security offerings, you must always make sure that you do your own research on the company, and decide whether an investment conforms to your own expected returns and risk profile.

Frequently Asked Questions

How would you explain a deemed prospectus in one line?

Imagine a company wants to sell shares, but instead of creating a special legal document specifically for that purpose, they give info through another source (like a broker). That document? Yep, a deemed prospectus!

Is a deemed prospectus always called a deemed prospectus?

No! This document can be issued to investors under many different names, sometimes even with advertisements and offering circulars. Investors must keep their eyes peeled for investing information before a public issue, no matter what the document might be called.

Is a deemed prospectus a bad sign?

Not exactly! It just means extra vigilance. Read closely, ask questions, and make sure you’re comfortable with the information before diving in. Happy investing!

How do you know the difference between a standard prospectus and a deemed one?

Look for the source – a deemed prospectus originates from an intermediary, while a standard one comes directly from the company. Deemed prospectuses may be less standardised in format compared to standard ones.

What is the purpose of a deemed prospectus?

Its purpose is to eliminate ambiguity concerning who is responsible for the terms and conditions mentioned in the prospectus. The document pinpoints accountability to the intermediary and the issuing company for the contents in the offer for sale.

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