In Short
- Public companies in Australia must issue a prospectus when offering securities, especially during an IPO.
- There are three types of prospectuses: full, short-form, and specialist, each catering to different types of offerings.
- A prospectus must contain essential details about the business, financials, and potential risks to inform investors.
Tips for Businesses
Before issuing a prospectus, companies should undertake thorough due diligence to ensure all information is accurate and compliant with legal standards. Seeking professional advice can help mitigate risks of liability for any misleading statements or omissions in the prospectus.
Private companies cannot offer securities like shares or options unless they first lodge a disclosure document with the Australian Securities and Investments Commission (ASIC). This requirement applies unless the offer qualifies for a specific exemption, like the small-scale offering exemption. This article focuses on the prospectus, one of the three primary disclosure documents, and sets out the key elements it should contain.
When Is a Prospectus Used?
If your company is a proprietary company, you cannot offer shares to the public. Therefore, you will only need to consider issuing a prospectus if your company is classified as a public company. A public company requires a full prospectus when listing on a stock exchange. This is also known as the company’s initial public offering (IPO).
What Are the Different Types of Prospectuses?
Generally, there are three types of prospectuses:
- full prospectus;
- short form prospectus; and
- specialist prospectus (used for continually quoted securities).
When issuing securities and disclosure documents are required, you must submit a prospectus by default. Prospectuses are lengthy documents, typically ranging from 75 to 100 pages.
Continue reading this article below the formWhat Must a Prospectus Contain?
Your prospectus should include all information that potential investors and their advisors would reasonably need to make an informed decision about the following:
- the rights and liabilities attached to the offered securities; and
- the company’s assets and liabilities, financial position and performance.
Although the Corporations Act contains a general disclosure test for a prospectus, it does not set out a “checklist” for all the content it should contain. In practice, a prospectus typically includes information about:
- the company’s business model;
- risks;
- background information on senior managers and directors and their remuneration;
- financial information; and
- details of the offer.
Include an investment overview to equip your potential investors with crucial information for making informed investment decisions. This overview should present a balanced assessment of both the benefits and risks.
What Is the Disclosure Standard and What Are the Risks?
Your prospectus must include information that those preparing it can reasonably be expected to know. If any required information is missing from your prospectus, ensure you have made sufficient inquiries to determine its full disclosure.
It is an offence to make false or misleading statements or engage in misleading or deceptive conduct about your company or its securities. This can include making false or misleading statements verbally or in writing or omitting information in your prospectus.
What Is Due Diligence and Why Is It Important?
When issuing a prospectus, due diligence involves a collaborative investigation. You, along with company representatives and any other parties who could be held legally responsible for the prospectus, will thoroughly examine all relevant aspects of the business. You must undertake a due diligence process to help ensure that the information you put forward:
- presents an accurate and coherent description of the company to potential investors;
- meets various legal requirements and
- ensures that any potentially liable parties can rely on due diligence defences in law.
Before you sign off on your prospectus and lodge it with ASIC, it is market practice to conduct thorough due diligence when drafting and verifying the document.
Under the Corporations Act, if you make a misleading statement about a future matter without reasonable grounds, you will be liable unless:
- you made all reasonable inquiries (if any) in the circumstances; and
- after doing so, you reasonably believed that the statement was not misleading or deceptive or that you did not make an omission in relation to a particular matter.
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Key Takeaways
Issuing a prospectus in Australia is crucial for companies going public. While private companies are generally exempt, public companies must provide a detailed prospectus to potential investors. This document outlines the rights and risks associated with the offered securities, along with the company’s financial health and business model. To ensure all necessary information is included and presented accurately, seeking professional guidance and conducting thorough due diligence with involved parties is essential. Following these steps safeguards both the company and investors, fostering informed investment decisions.
If you require help with your prospectus, our experienced startup lawyers can assist as part of our LegalVision membership. As a tech startup ourselves, we understand what is involved in raising capital successfully. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Can a proprietary company issue a disclosure document?
No, only public companies can issue disclosure documents such as a prospectus. Proprietary companies are prohibited from raising capital where such a raise would require a disclosure document.
What is a publicly unlisted company?
A company that has more than 50 non-employee shareholders must be reclassified, either voluntarily or under the direction of ASIC, as a public company. An unlisted public company is not listed on a public exchange.
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