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A company contemplating raising capital by going public has to create a prospectus, a legal disclosure document that allows existing and potential investors to assess the merits of the investment opportunity. Although the requirements can be cumbersome, they are necessary to protect the public from making investment decisions based on incorrect or false information.
A prospectus generally contains information about the company, such as its history and the management team, as well as listing opportunities, risks, financial details and other material that investors would like to know.
The document is prepared by the issuing company and a firm of solicitors and costs a minimum of £50,000 in the European Union and £100,000 in the US and the UK. The typical practice in the UK is to publish the prospectus as a single document, but it can also be presented as three documents: an initial registration document, a securities note and a prospectus summary.
Once completed, the prospectus is passed to the appropriate regulatory body for approval. For example, the FCA (Financial Conduct Authority) in the United Kingdom, the SEC (Securities and Exchange Commission) in the United States and the BaFin (Federal Financial Supervisory Authority) in Germany.
While Swordblade & Co doesn’t write prospectuses, we work closely with law firms in several jurisdictions who can prepare them for you.
Regardless of the country or exchange, the content of a prospectus is subject to a series of strict rules and regulations because investors have to make informed decisions about where to put their money. This cannot happen if a company only wants to disclose information that puts it in a favourable light. These rules are not determined by where a business is registered but by where the funds are raised.
The information presented in a prospectus must be concise, comprehensible, easily analysable, fair and accurate. It must encompass:
A prospectus is not required if any of the following apply:
The UK has its own prospectus regime distinct from the EU regime, although it largely preserves European regulations that existed before Brexit. However, one key difference applies to passporting, the practice where a prospectus approved by an EU member state or another belonging to the EEA (European Economic Area) is valid in all others. This no longer applies to the UK. Prospectuses approved in the EU/EEA can no longer be passported into the UK. Likewise, prospectuses approved by the FCA can’t be passported into the EU/EEA.
Prospectuses passported into the UK before December 31, 2020, will continue to be valid during their 12-month validity period. However, UK-approved prospectuses passported into the EEA before this date are invalid.
In 2019, a new prospectus regime came into effect across the European Union covering the drawing up, approval and distribution of prospectuses. The intention was to simplify the process and make it easier for companies to float.
In the wake of the COVID-19 pandemic, the EU introduced further amendments to boost recovery and allow for the rapid recapitalisation of companies. The most significant measure is the adoption of a short-form prospectus known as an EU Recovery Prospectus. This is easier to produce and easier for investors to examine and understand and should be a single document of 30 sides of A4-sized paper. It must contain:
There are various exemptions from the requirement to produce a prospectus in the EU when going public. These include:
Companies offering stocks or bonds in the USA must file a preliminary and final prospectus with the SEC. The preliminary prospectus is also known as a red herring and contains most of the information required in a final prospectus. It does not cover essential information about the share issue, such as the price and the number of shares offered. The purpose of the red herring is to gauge interest, and the material it contains is reviewed thoroughly by the SEC for falsehoods or statements that violate any laws or regulations.
The final prospectus contains the full details of the investment offering, including the number of shares or certificates to be issued and the offering price.
At a minimum, the final prospectus has to contain:
Some offerings (known as exempt offerings) do not have to create or file a prospectus. Examples of exempt offerings are:
If your company is planning to go public and raise funds on the capital markets, we look forward to hearing from you.
The easiest way to get started is to request a free evaluation. By providing minimal information about your company and capital needs, we will be able to provide you with a quick assessment by email. In most cases we can tell you if your business is ready to go public, or not yet.
We’ll also let you know if we think that Swordblade & Co are a good fit for your flotation plans, and anything else that we may think can help you.
Alternatively, if you are ready to talk in depth about floating your company, we recommend you arrange a paid consultation with one of our partners. It can usually be scheduled within a few days and is the fastest way to get detailed advice.
In 1700, the Hollow Sword Blade Company began a banking and securities trading business in the City of London. Today, from the same location, Swordblade & Co helps ambitious growth companies access public markets. We are proud to continue a rich, centuries-old legacy of assisting entrepreneurs in building their companies and visions.
Swordblade & Co
1 Royal Exchange,
London EC3V 3DG
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