When Do Companies Need to Issue a Prospectus?

Company Prospectus

Generally a public company offering securities for sale of securities like shares or debentures should provide disclosure documents. The term disclosure document describes all regulated corporate fundraising documents for the issue of securities in Australia. Of these there are four types of disclosure documents: a corporate prospectus, an offer information statement, a profile statement, and a two-part simple corporate bonds prospectus. In this article we will focus on the first one and you can find out more about the others here.

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Recap – What Is a Prospectus?

Of the 4 disclosure documents previously mentioned, a prospectus covers the most categories in terms of requirements. In essence it provide detailed information about the company and is issued to investors. Although there is no checklist a prospectus could include:

  • An investment overview
  • Corporation overview
  • Industry overview
  • Financial information
  • Risks
  • Key people and interests
  • Key benefits for investors
  • Details of the offering

Find out more about what a corporate prospectus is.

If your prospectus contains an offer for securities listed on in prescribed financial market, you may not need to include as much information. This is because the information you leave out will already be publicly available to the market as part of your continuous disclosure obligations. For more information see ASIC Regulatory Guide Offering securities under a disclosure document.

Issuing a Corporate Prospectus

Public companies in Australia should issue a prospectus as part of their efforts to raise new funds. In an initial public offering (IPO) this is usually part of the due diligence process. Any subsequent fundraising offers to retail investors generally will also need a prospectus. A prospectus enables investors to make an informed decision about the company and improves market stability. Furthermore, without these mandatory disclosure requirements it would be difficult for retail investors and their professional advisers to get the information they need. This reasoning underlines the times you will need to issue one.

Although a requirement for public companies, all companies entitled to fundraise can use a prospectus. This is because it is a standardised way of communicating information to investors. Even professional investors often use a prospectus as a basis for trading securities. They are also relevant and useful with other disclosures that requires shareholders to make an investment decision relating to securities.

Reconstruction and Capital Reductions

A reconstruction occurs where one company’s business transferred to a new company. This is possible because corporations have legal personhood and the same business can be run through a different legal entity. Practically speaking, the old company enters liquidation and shareholders agree to take shares of equivalent value in the new company. This path may be chosen in order to raise new capital and sometimes to move through corporate failure.

Capital reduction decreases a company’s shareholder equity through share cancellations and buybacks. This is beneficial because it can increase shareholder value and create a more efficient capital structure.

A prospectus must be presented with an offer of securities as part of a reconstruction or capital reduction. The offer must be to either:

  • Issue securities.
  • Transfer securities off-market by the corporations’ controller or where the on-sale requirement applies.

If changes occur which subsequently have an adverse effect of the interest of the investor, a supplementary or replacement prospectus should be given. The original prospectus may have contained a misleading or deceptive statement; Required information was left out; or new circumstances arose that would have been required to be included in the prospectus. 

When You Don’t Need to Issue a Corporate Prospectus

There is no requirement to issue disclosure documents for offers which are in regards to:

  • Employee share schemes
  • Foreign disclosure documents – mutual recognition
  • Continuously quoted securities
  • On-sale of securities/secondary sales
  • Share purchase plans

If you wish to find out more, the ASIC Fundraising page contains further information on these circumstances.

Exemptions

Below are some exceptions which exist under section 708 of the Corporations Act. They remove the need to issue disclosure documents, including a corporate prospectus.

  • Personal offers.
  • Specific persons due to their financial capacity, experience, or association.
  • Offers made to current holders of the securities.
  • Any occasions where you won’t be accepting or receiving any payment in exchange for the securities.
  • Offers made to creditors under a deed of company arrangement, only under certain conditions.

Final Thoughts

Raising capital is an important but complicated part of running a company. For further assistance understanding your fundraising obligations, you can find a commercial lawyer through the marketplace. Remember once things are ready to go for your prospectus you should lodge it with ASIC before using it to raise funds. You can lodge your prospectus through the ASIC Regulatory Portal.

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