Each joint-stock company issues securities, but there are a number of nuances in this activity. In certain cases, the initial and additional issue requires the preparation of a mandatory document - a prospectus for the issue of shares. To navigate the reasons for compiling this document, you need to understand: a securities prospectus is a mandatory attribute of a share issue, or it is developed only in certain cases.
Need for a prospectus
To better understand the purpose of the prospectus in question, its concept should be defined. A securities prospectus is an important document that accompanies the issue of shares of an economic entity and contains information about the issuer and information about the significant aspects of its functioning: financial position, reporting data, shareholders, etc.
This document must be approved by the composition of the first persons of the company or the executive body of this organization, endowed with this right. In addition, it may be audited, certified by a financial appraiser orSpecial Securities Advisor.
Since the prospectus includes quite extensive blocks about various components of the company's activities, it is of interest to a whole range of economic entities. It should be noted that the company itself develops a prospectus, the sample of which is not strictly recommended in the form.
The main requirement is the inclusion of all necessary information, which is set out in the regulation reflecting the disclosure rules of data issuing companies.
Who the prospectus is for
As noted, the information presented in the prospectus and disclosing the financial and economic activities of the organization will be important to a number of entities operating in the market.
Since the prospectus contains information about the performance of the company and justification of the reasons for the issue of shares, this is primarily of interest to the shareholders themselves. Other interested parties are investors who, based on the data provided, will form decisions on the purchase of shares.
It should be noted that the information disclosed in the prospectus must be made available to all market participants prior to the issuance.
Securities and their emission
The issuance of securities by the issuing company must necessarily comply with a certain procedure prescribed in the law governing the securities market. This order includessteps:
- assuming a reasonable intent to issue shares;
- approval of this decision;
- state issue registration procedure;
- production of certificates for issued papers;
- placement;
- registration of a report on the results of the release with a government agency.
Accounting for the issue of shares in a state body involves the issuance of a permit for it with the appropriate number, which will have to participate in any subsequent transaction with issued securities.
Security placement options
The tasks of issuing shares are: creating the capital of the organization, managing capital, attracting financial resources, and so on.
If the issue of shares takes place in the form of a private placement, it is also called private, then in this case there is no public notification of this procedure. The issued shares will be distributed among a closed circle of persons.
Another option for the distribution of securities is an open placement between persons of an unlimited circle. In this case, the maximum disclosure of information is required, which is reflected in the prospectus. It is with this distribution option that state registration of the securities prospectus is necessary. This will be discussed further.
Registration of share issue prospectus
Registration of the issue of securities (prospectus) is obligatory for their public placement. ways inIn this case, quite a lot, including with the help of stock exchanges.
Approval of the prospectus in the relevant body is carried out in the following cases:
- When the number of company shareholders is over 500.
- The cost of issuing shares between shareholders will exceed 50,000 minimum wages.
- Shares will be distributed to shareholders.
- Expected share conversion and open subscription.
- If there is a closed subscription, but if the number of shareholders exceeds five hundred people.
The state body may not accept the conclusion on the issue, and then the registration of the prospectus of securities will also be rejected. The grounds for refusal may be the issuer's failure to comply with the requirements of the legislation on the rules for the issuance and circulation of securities, the failure to pay the necessary taxes related, among other things, to the issue, incorrect or knowingly false information that the issuer provided about himself.
Until the organization has been registered and has not received a positive decision from the relevant authority, it is forbidden to carry out any actions related to securities.
Contents of disclosures found in the prospectus
As previously defined, a prospectus is a document that is developed by the issuer and contains essential information about the business and its effectiveness in the company.
In the case where shares are distributed bysubscription or by any other public means, disclosure of information is mandatory. It should be noted that not only the open, but also the closed method of subscription will involve the execution of a prospectus, if the cases described above apply.
Methods of communicating information are different, but publication in a printed publication with mass distribution of at least 10 thousand copies is mandatory. This rule applies to open subscription. For a closed-type subscription, the circulation must be at least a thousand copies.
When publishing information, there must be information about the issuing company, the size of the authorized capital, the value of the (nominal) security and other essential data related specifically to the issue. In addition, a description of the appearance of the security and the means of protecting the valuable document is required.
Secondary share issue and prospectus
Both initial and re-issuance of shares requires compliance with all procedural rules. If the secondary issue of shares is subject to conditions that require public disclosure of information, then the securities prospectus is also the document that must be drawn up and registered.
Bank as an issuer of securities
A banking organization, like any other business entity of a joint-stock type, issues shares, which is predetermined by its form of ownership. General rules for the issue of securities are determined by legislation in this area, but there are somefeatures.
Firstly, the procedure for issuing shares is regulated by a number of specialized laws and regulations that apply specifically to commercial banks. Thus, the instruction of the Central Bank, which developed the rules for securities issued by commercial banks, determines the issue only in the following cases: when organizing a bank, to increase the size of the authorized capital and to attract new financial resources.
The initial issue of shares takes place exclusively in a closed circle. Any securities issued by the bank are registered with the Central Bank.
Like any other issuer of securities, a credit institution complies with the stages of issuance and must prepare a prospectus for the bank's securities. Disclosure of information is also a mandatory requirement. In addition, this document must be verified and endorsed by an independent audit company.
Risk factors
Despite all the advantages of compiling a prospectus, there are certain concerns that can be conditionally divided into several groups. They will be listed below:
- industry risks;
- state and regional risks;
- financial risks;
- legal risks;
- risk of loss of business reputation (reputational risk);
- strategic risk;
- risks associated with the issuer's activities;
- banking risks.
Conclusion
Every company that, by its form of formation, involves the issuance of shares, must complyall procedural rules in this area of activity.
A prospectus is one of the mandatory documents that an issuing company must register with a government agency if the issuance of shares meets the requirements for public disclosure.
