Definition and nature of a prospectus
Notice, circular, document inviting public to subscribe or purchase
Invitation to public
A notice, circular, advertisement or document inviting applications or offers to subscribe for or purchase securities, or offering any securities for subscription or purchase falls within the meaning of “prospectus”. As explained in Unit 3, a prospectus may later be supplemented with additional or amended information. This is called supplementary prospectus. A supplementary prospectus is issued after the prospectus it relates to has been registered, but before the issue of (issue or transfer to applicant) the securities or units in the unit trust (Section 226, CMSA).
Capital can be raised by issuance of any of the following securities:
1. debentures, stocks or bonds issued or proposed to be issued by any government;
2. shares in or, debentures of, a body corporate or an unincorporated body; or
3. unit trusts or prescribed investments; and
4. any right, option or interest in respect of these securities.
As it is a mechanism to raise capital from the public, the legislature has imposed strict requirements as to the content of any prospectus and has imposed sanctions against those who allow a prospectus to be issued with misinformation in it.
Offer of any securities for subscription or purchase
Offer for sale
The procedure of selling through an intermediary is not prohibited; merely regulated. Any document which offers for sale to the public shares or debentures which have been allotted (or agreed to be allotted) to any person with a view to their being offered for sale to the public is deemed as prospectus. All the rules of law as to the contents of, liability for, or otherwise relating to prospectus apply.
An allotment of (or agreement to allot) shares or debentures with a view to their being offered for sale to the public is presumed (unless the contrary could be proved) if:
1. the offer to the public is made within six months after the allotment (or agreement to allot), or
2. at the date when the offer to the public is made, the whole of the consideration to be received by the corporation for the shares or debentures has not been received.
As well as deeming the document a prospectus, the requirements of the Act relating to a prospectus have effect as though the persons making the offer to sell the shares (e.g., the partners of the broking house employed in the exercise) were themselves named in the prospectus as directors, the liability of persons making the offer in respect of statements or non-disclosures in the document is not prejudice, and in addition to compliance with the normal prospectus requirements, such a document must also state:
1. the net amount of consideration receivable by the corporation of subject shares or debentures; and
2. the place and time at which the contract under which the sham debentures are allotted (or to be allotted) may be inspected.