From 31 July 2011, the rules governing when a prospectus is required are being relaxed. Smaller companies are most likely to benefit from the changes, which affect small capital raisings and offers targeting a relatively small number of investors.
A prospectus is generally required when securities are to be admitted to trading on a regulated market, such as the main market of the London Stock Exchange. This does not affect companies whose securities are traded on AIM or the PLUS-quoted market.
In addition all companies, on whatever market and including unquoted plcs, must issue a prospectus if they offer securities to the public.
Currently, the requirement for a prospectus in relation to an offer to the public does not apply if the total amount being raised across the European Economic Area (EEA) is less than 2.5 million euros (or an equivalent amount). This is being raised to 5 million euros.
The second change relates to the people to whom an offer of securities is made, or at whom an offer is directed, in each EEA country. If an offer is made only to qualified investors and not to any, or only to a limited number of, other people, a prospectus is not required. Qualified investors include banks, investment institutions and individuals and small companies who are considered to be sophisticated investors. Currently, if an offer targets no more than 100 unsophisticated investors in each country, a prospectus is not required. This threshold is being increased to 150.
These relaxations are intended to reduce the administrative burden on companies, enabling them to raise small amounts of capital more cost-efficiently. The cost of producing a prospectus is estimated to range from 7 to 12 per cent of the funds raised for offers below £10 million.
The Government also hopes the changes will encourage smaller companies to conduct rights issues, which are treated as offers to the public, rather than raising funds through private placements. This would help to protect minority shareholders from dilution.
All companies can benefit from the relaxations in the rules relating to public offers. However, companies on the main market of the London Stock Exchange must also beware of the separate requirement to issue a prospectus for any securities which are to be traded on a regulated market. The exemptions discussed above do not affect this requirement. Main market companies must therefore also check that the issue of securities comes within an exemption relating to shares on regulated markets, such as that the shares offered represent less than 10 per cent of the number of shares already admitted to trading.
Companies raising funds across the EEA must also take care. Although these changes result from amendments to the Prospectus Directive, member states have until July 2012 to adopt them so the old thresholds may still apply in other countries.
The Government intends to consult in Autumn 2011 on the implementation of other changes to the prospectus regime, including a requirement for the prospectus summary to contain certain key information and a reduced disclosure regime for rights issues.
For further information, please contact:
020 7002 8518
Professional Support Lawyer
020 7002 8542
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