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Prospectus

Whenever an offer of shares or debentures for sale to the public is made, the offering company must issue a prospectus and file this with the Registrar of Companies. Such offers include circulars, advertisements, etc., which can be construed as invitations to the reader of them to subscribe for shares or debentures. The only offers excluded from this requirement are those made to existing shareholders to subscribe for shares of a class already issued or invitations extended to employees or their families.

The prospectus is a detailed and lengthy document which must conform to the provisions of the Third Schedule to the Companies Act 1985. Apart from describing the aims, objects and capital structure of the company together with any past history of operation, it may also contain statistical information and projections as to future profits. Any statements by ‘experts’ in a prospectus must be published with the approval of those experts and the fact that this approval has been given must be stated.

Companies cannot avoid the issue of a prospectus by offering shares through a third party, e.g. an issuing house or a merchant bank, as shares and debentures so issued are considered to be issued by the company itself. There are substantial penalties for knowingly making false statements in a prospectus and persons doing so may incur prospectus and persons doing so may incur id parties who have suffered losses by relying on those statements. Foreign companies inviting subscription for shares or debentures within the U.K. must comply with the regulations contained in sections 72-79 of the 1985 Act.

Reference: The Penguin Business Dictionary, 3rd edt.