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 binding 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.
The need for a prospectus
In order to better understand the purpose of the prospectus under consideration, its concept should be defined. The securities prospectus is an important document that accompanies the issue of shares of an economic entity and contains information about the issuer and information on the essential aspects of its functioning: financial position, financial statements, 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, he may undergo an audit, certification by a financial appraiser or special securities consultant.
Since the prospectus includes quite extensive blocks on various components of the company’s activities, it is of interest to a range of economic entities. It should be noted that the company itself is developing a securities prospectus, a sample of which is not in a strictly recommended form.
The main requirement is the inclusion of all the necessary information, which is set out in the provision reflecting the rules for the disclosure of data by issuing companies of securities.
Who is the prospectus for?
As noted, the information presented in the prospectus and disclosing the financial and economic activities of the organization will be important for a number of entities operating in the market.
Since the prospectus contains information about the performance of the company and the justification of the reasons for the issue of shares, this is primarily interesting to the shareholders themselves. Other interested parties are investors who, based on the provided data, will formulate decisions on the purchase of shares.
It should be noted that for all market participants the information disclosed in the prospectus should be available before the release.
Securities and their issue
The issuance of securities by the issuing company must necessarily comply with a certain procedure prescribed in the law governing the securities market. The specified order includes the steps of:
- the adoption of a reasonable intention to issue shares;
- approval of this decision;
- state procedure for registration of release;
- production of certificates for issued securities;
- accommodation;
- registration in the state body of the report on the results of the release.
Accounting for the issue of shares in a state body involves the issuance of a permit for it with the corresponding number, which will be required to participate in any subsequent transaction with issued securities.
Securities placement options
The objectives of the issue of shares are: creating the organization’s capital, managing the capital, attracting financial resources and so on.
If the issue of shares takes place in the form of a closed placement, it is also called private, then in this case there is no public notification of this procedure. Issued shares will be distributed to a closed circle of persons.
Another option for the distribution of securities is open placement between persons of an unlimited circle. In this case, maximum disclosure of information is required, which is reflected in the prospectus. It is with this distribution option that the state registration of the securities prospectus is necessary. This will be discussed further.
Registration of the issue prospectus
Registration of the issue of securities (prospectus) is mandatory for their public placement. In this case, there are a lot of ways, including using stock exchanges.
Approval of the prospectus in the relevant authority is carried out in the following cases:
- When the number of shareholders is more than 500 people.
- The cost of issuing shares between shareholders will exceed 50 thousand minimum wages.
- Shares will be distributed among shareholders.
- It is supposed to convert shares and open subscription.
- If there is a closed subscription, but if the number of persons from 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 securities issue prospectus will also be rejected. The reason for the refusal may be the issuer's failure to comply with the requirements of the legislation on the rules for issuing and circulating securities, the lack of payment of the necessary taxes related, inter alia, to the issue, incorrect or knowingly false information that the issuer provided about itself.
Until the organization has been registered and received a positive decision from the relevant authority, it is forbidden to carry out any actions related to securities.
The content of the disclosed information in the prospectus
As previously determined, the securities issue prospectus is the document that is developed by the issuer and contains significant information about the economic activity and its effectiveness in the company.
In the event that the shares are distributed by subscription or by any other public method, disclosure of information is a prerequisite. It should be noted that not only the open, but also the closed method of subscription will involve the execution of the prospectus if the cases described above are valid.
There are various ways of communicating information, but publication in a print 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, information about the issuing company, the amount of the authorized capital, the value of the (nominal) security and other material data related specifically to the issue must be present. In addition, a description of the appearance of the security and means of protection of the security document is required.
Secondary issue of shares and prospectus
Both the initial and the re-issue of shares require compliance with all procedural rules. If the secondary issue of shares falls under the conditions under which public disclosure is necessary, then the prospectus of securities is also the document that is subject to compilation and registration.
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 some features.
Firstly, the procedure for issuing shares is regulated by a number of specialized laws and regulations that apply specifically to commercial banks. So, the instruction of the Central Bank, in which the rules for securities are developed, the issuers of which are commercial banks, determines the issue only in cases: when the bank is organized, 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 another issuer of securities, a credit institution follows the stages of issue and must prepare a prospectus of securities of the bank. Disclosure is also a requirement. In addition, this document must be checked and endorsed by an independent audit company.
Risk factors
Despite all the advantages of compiling the prospectus, there are certain concerns that can conditionally be divided into several groups. They will be given 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 activities of the issuer;
- banking risks.
