LPC Law Notes Equity Finance Notes
A collection of the best LPC Equity Finance notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor". In short these are what we believe to be the strongest set of Equity Finance notes available in the UK this year. This collection of notes is fully updated ...
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COMMON PRINCIPLES OF PRIMARY AND SECONDARY SHARE ISSUES
Prospectuses
When is a prospectus required?
Under s.85 FSMA, there are two alternative tests. If either test is satisfied, that means the company will have to publish a prospectus. However, there may be an exemption under either test.
Test 1
An offer of transferable securities is made to the public in the UK
Definition of an ‘offer to the public’ is very wide under s.102B FSMA
Exemptions:
Exempt offers (s.86(1)) – i.e. offers made to or directed at qualified investors only or fewer than 150 people per EEA state
Exempt securities – i.e. securities contained in parts 1 and 2 of Sched 11A FSMA
Test 2
Transferable securities are admitted to trading on a regulated market in the UK
Exemption: Securities set out in Part 1 of Sched 11A FSMA and PR 1.2.3R [i.e. admission of shares representing over a period of 12 months less than 10% of shares of the same class already admitted to trading on the same regulated market]
A retail offer (whether on the Main Market or AIM) will almost certainly require a prospectus under Test 1, as it is likely to be large and will not fall under any of the exceptions.
A placing on the Main Market will also require a prospectus under Test 2, even if it falls within the ‘qualified investor’ exemption in Test 1, because the Main Market is a regulated market.
A placing on AIM however, will not require a prospectus under either Test, because AIM is not a regulated market.
Contents of a prospectus
The starting point is s.87A FSMA: the general disclosure obligation. This provides that the FCA will not approve a prospectus unless it contains the ‘necessary information to enable investors to make an informed assessment of the company.’
The specific disclosure requirements will then vary according to the nature of the issuing company and the type of security to be listed. However, remember that it may be necessary to add to the prospectus something which is not a specific content requirement due to the general disclosure requirement.
Under s.87B(1) FSMA (cf PR 2.5.2R) the FCA can in limited circumstances authorize the omission of certain information from a prospectus if it considers disclosure of the information to be:
Of minor importance only;
Contrary to the public interest; or
Seriously detrimental to the issuer and omission is not likely to mislead the public with regards to facts or circumstances.
A prospectus will be valid for 12 months after it is approved (PR 5.1.1R) as long as the issuer provides a supplementary prospectus if required under s.87G FSMA.
Specific contents requirements
PR 2.3.1 [minimum information] – directs you to Art. 3-23 of the PD Reg which provides for the minimum information to be included in a prospectus. The relevant articles to remember for admission of shares are:
Art. 3: A prospectus must be drawn up by using one or a combination of the schedules and building blocks in the PD Reg.
Art. 21: A prospectus must use the combinations of schedules and building blocks referred to in Annex XVIII of the PD Reg, which refers you to the Commission Regulation which contains the table of combinations.
Art. 4/Annex I: The share registration schedule
Art. 5/Annex II: The proforma financial information building block
Art. 6/Annex III: The securities note schedule
Art. 26a: A proportionate schedule for rights issues (allowing a shorter prospectus)
PR 2.1.4 [contents of summary] – directs you to Art. 24 of the PD Reg and Annex XXII which specifies the contents requirements for the summary.
The length of the summary shall not exceed 7% of the length of the prospectus or 15 pages, whichever is longer
The summary must be clearly written and present the key information in an easily accessible and understandable way (tabular format)
A person may incur civil liability if the summary is misleading, inaccurate or inconsistent when read together with other parts of the prospectus (s.90(12) FSMA) – PR 2.1.7 requires the prospectus to contain a warning to this effect
Format
A prospectus may be drawn up as a single document or separate documents (registration document, securities note, and a summary), but market practice indicates a preference for single documents.
However, a separate registration document may be useful under PR 5.1.4R, which allows it to remain valid for up to 12 months, which can then be reused with a new securities note and summary note.
Generally, the prospectus will contain:
Clear and detailed table of contents (PR 2.2.10)
Summary (required by s.87A(5) & (6) FSMA and PR 2.1.2 and PR 2.1.4)
Risk factors linked to the issuer (PR App 3.1.1)
Financial information (PR App 3.1.1, Annex I and Annex II)
Operating and financial review (PR App 3.1.1)
All other information required by the schedules and building blocks
Liability for a prospectus
1. Civil liability
Persons responsible
In order to establish whether your client is caught by s.90 FSMA, you need to check if they are a ‘person responsible’ under PR 5.5.3R(2):
The issuer
All directors of the issuing company at the time the prospectus is published
All future directors who are named in the prospectus
The offeror, if this is not the issuer (e.g. existing SH offering shares for sale)
Each person who accepts and is stated in the prospectus as accepting responsibility (e.g. accountants)
Each person who has authorized the contents of the prospectus
The prospectus must make it clear that the directors have authorized the statements contained in the document. Such authorization could potentially attract personal liability – but directors will not be responsible for contents published ‘without his knowledge or consent’ (PR 5.5.6R) [unlikely to happen in practice].
Except for the issuer and directors, any person who accepts responsibility for or authorizes contents of a prospectus may state that they do so only in relation to specified parts of the prospectus (PR 5.5.8R).
A solicitor is unlikely to...
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A collection of the best LPC Equity Finance notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor". In short these are what we believe to be the strongest set of Equity Finance notes available in the UK this year. This collection of notes is fully updated ...
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