Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Initial Public Offer Process and Offer Document

Updated 11 October 2026 · Fact-checked

An Initial Public Offer (IPO) is the first offer of a company's securities to the public through a prospectus. The company appoints intermediaries, files a draft offer document, gets observations, files a red herring prospectus, opens and closes the issue, then files the final prospectus. Answer in that order.

Understand Initial Public Offer Process and Offer Document

A company raises public funds by inviting the public to subscribe to its securities. Under section 23, a public company may do this through a public offer by prospectus. The Act says a public offer includes an initial public offer, a further public offer, and an offer for sale by an existing shareholder through a prospectus.

The prospectus is the offer document. It tells investors what they are buying and what risks they take. It also fixes liability. If it contains a mis-statement or leaves something out, the persons responsible face the consequences. That is why every step before the issue is about disclosure and filing.

The process runs in a logical order. First the company decides to issue and gets board and shareholder approvals. It appoints a merchant banker (lead manager) and other intermediaries. A draft offer document is prepared and filed with SEBI, which gives its observations. The company then files a red herring prospectus with the Registrar, opens the issue, collects bids, and closes it. After closing, it files the final prospectus, then moves to allotment and listing.

A red herring prospectus (section 32) is a prospectus that does not include complete particulars of the quantum or price of the securities. It is used in book-building, where the price is discovered during the issue. It carries the same obligations as a prospectus. Any variation in the final prospectus must be highlighted as variations.

Two related ideas also matter. A shelf prospectus (section 31) lets certain classes of companies, as SEBI provides, make several offers over a period not exceeding one year without a fresh prospectus each time. An offer for sale (sections 25 and 28) means existing holders sell shares to the public, and the document is deemed to be a prospectus.

The detailed SEBI steps, such as the draft document name and the timelines for SEBI observations, come from SEBI's ICDR regulations. The Companies Act text above covers the prospectus, red herring, shelf and application form rules.

Key rules to remember

Public offer routes (s.23): Public company: public offer by prospectus, private placement, rights issue or bonus issue; A private company can use only rights issue, bonus issue or private placement. It cannot make a public offer.
Red herring prospectus filing (s.32(2)): File with Registrar at least 3 days before the subscription list and offer open; It is a prospectus without complete particulars of quantum or price. It carries the same obligations as a prospectus.
After closing of the offer (s.32(4)): File prospectus with Registrar and SEBI stating total capital raised, closing price and other details not in the RHP; Variations from the RHP must be highlighted as variations in the prospectus.
Shelf prospectus (s.31): Validity: not more than 1 year, from the date of opening of the first offer; An information memorandum is filed before a second or later offer. Memorandum plus shelf prospectus is deemed a prospectus.
Withdrawal after change (s.31(2) proviso): Refund of subscription within 15 days if applicant withdraws after being told of changes; Applies where advance payments were received before the change.
Application form (s.33): Application form must be accompanied by an abridged prospectus. Penalty: ₹50,000 for each default; Exceptions: bona fide invitation to underwrite, or securities not offered to the public.
Offer for sale deemed prospectus (s.25(2)): Evidence of sale 'with a view' to public offer if offer is made within 6 months of allotment, or full consideration was not received; This is evidence unless the contrary is proved.

How to solve Initial Public Offer Process and Offer Document questions

Most questions ask you to describe the process, explain a document, or apply a rule to facts. Use one fixed structure.

1Identify the question type: process, document comparison, or fact-based application.
2State the provision first: the section and its rule in plain words.
3List the facts that matter, such as type of company, timing, price disclosure and the stage of the issue.
4Walk through the stages in order: approvals, intermediaries, draft document, SEBI observations, RHP filing, opening and closing, final prospectus.
5Apply the rule to the facts, checking dates and numbers (3 days, 1 year, 15 days, ₹50,000).
6Close with a clear conclusion and one practical compliance point, such as who signs or what must be filed and with whom.

Quickest way: Stage-ladder for IPO questions

When to use it: Use when the question asks for the IPO process or asks what happens at a given stage.

Write the ladder: Approvals → Intermediaries → Draft offer document to SEBI → Observations → RHP to Registrar (3 days before opening) → Open and close → Final prospectus to Registrar and SEBI → Allotment and listing.
Place the question's facts on the ladder.
Quote the section for that rung.
Add the conclusion in one line.

Common mistakes in Initial Public Offer Process and Offer Document

Treating the draft offer document and the red herring prospectus as the same thing.
Both lack final price details and the names sound alike.
Fix: The draft goes to SEBI for observations before the issue. The RHP is filed with the Registrar at least 3 days before opening and carries the same obligations as a prospectus.
Saying the RHP is filed with SEBI under section 32.
Students mix the SEBI filing stage with the Registrar filing stage.
Fix: Section 32(2) requires filing the RHP with the Registrar. Section 32(4) requires the final prospectus to be filed with both the Registrar and SEBI.
Forgetting that a private company cannot make a public offer.
Students focus on the process and skip the eligibility rule.
Fix: Under section 23(2), a private company may use only rights issue, bonus issue or private placement.
Giving the shelf prospectus validity as one year from filing.
The word 'filing' is used loosely.
Fix: Validity does not exceed one year and starts from the date of opening of the first offer under that prospectus.
Ignoring the abridged prospectus with the application form.
It is a small point and gets left out of process answers.
Fix: Mention section 33: no application form unless accompanied by an abridged prospectus. The penalty is ₹50,000 for each default.
Stating an offer for sale is outside prospectus rules because the company gets no money.
Students focus on who receives the funds.
Fix: Under sections 25 and 28, the document making the offer for sale is deemed a prospectus issued by the company, and prospectus liability applies.

Worked examples

Example 1

Arjun Textiles Limited, an unlisted public company, plans an IPO by book-building. The price band will be fixed later. Advise on the offer document it must use, and when it must be filed with the Registrar if the issue is to open on 20 March.

Show the solution

Provision: section 32 lets a company issue a red herring prospectus before the prospectus. It is a prospectus without complete particulars of quantum or price.
Facts: the price will be discovered through book-building, so complete price particulars are not available at the start.
Application: the RHP is the right document. It carries the same obligations as a prospectus.
Timing: it must be filed with the Registrar at least three days before the subscription list and offer open. For a 20 March opening, filing must be done no later than 17 March.
After closing: the final prospectus stating total capital raised, closing price and other details missing from the RHP must be filed with the Registrar and SEBI. Variations from the RHP must be highlighted.

Answer: Arjun Textiles should issue a red herring prospectus, file it with the Registrar by 17 March at the latest, and after the issue closes file the final prospectus with the Registrar and SEBI, highlighting variations.

Example 2

Meera Infra Limited filed a shelf prospectus. Its first offer opened on 1 July 2027. Before a second offer, it saw a new charge created on its assets. Explain the validity period, the compliance required, and the position of an applicant who paid in advance and wants to withdraw.

Show the solution

Validity: under section 31(1), the shelf prospectus must state a validity not exceeding one year, commencing from 1 July 2027, the opening of the first offer. So it cannot run beyond 30 June 2028.
Second offer: no further prospectus is needed in that period.
Compliance: section 31(2) requires an information memorandum with material facts on new charges created, changes in financial position since the previous offer, and other prescribed changes. It is filed with the Registrar before the second offer.
Deemed document: the memorandum together with the shelf prospectus is deemed a prospectus.
Advance applicants: they must be told of the changes. If they want to withdraw, all subscription money must be refunded within fifteen days.

Answer: The shelf prospectus is valid for up to one year from 1 July 2027. Meera Infra must file an information memorandum covering the new charge before the second offer, and refund withdrawing advance applicants within fifteen days.

Exam tips

Write the section number with each rule. Sections 23, 25, 28, 31, 32 and 33 are in the text and are safe to quote.
Begin process answers with a short list of stages, then expand. It shows structure to the examiner.
Learn the numbers: 3 days, 1 year, 15 days, 6 months, ₹50,000. Case questions often hinge on one of them.
End every case answer with a conclusion and a practical filing point: what is filed, with whom, and when.
When asked to differentiate the draft offer document and the RHP, use two columns' worth of points in short lines: filer, recipient, purpose, stage.

Practice questions from Raising of Funds from Equity and Procedural Aspects - Public Funding

Initial Public Offer Process and Offer Document: frequently asked questions

What is the difference between a draft red herring document and a red herring prospectus?

The draft document is filed with SEBI before the issue so that SEBI can give observations. The red herring prospectus is filed with the Registrar at least three days before the issue opens. It lacks complete price or quantum details but carries the same obligations as a prospectus.

When must the final prospectus be filed after an IPO?

Section 32(4) says it is filed upon the closing of the offer. It states the total capital raised, the closing price and other details not in the red herring prospectus. It goes to the Registrar and to SEBI.

Can a private company make an IPO?

No. Under section 23, a public company may issue securities by public offer, private placement, rights issue or bonus issue. A private company may use only rights issue, bonus issue or private placement.

Is an abridged prospectus compulsory with every application form?

Generally yes. Section 33 bars issuing an application form unless it is accompanied by an abridged prospectus. Exceptions cover a bona fide invitation to underwrite, and securities not offered to the public. Default attracts a penalty of ₹50,000 for each default.