Prospectus of securities is ... Definition, description, risk factors and recommendations

Each joint-stock company issues securities, but there are a number of nuances in this activity. In certain cases, the initial and additional issues require the preparation of a binding document - a prospectus for the issue of shares. To be guided in the reasons for drawing up this document, it is necessary to understand: the prospectus of securities is an obligatory attribute of the issue of shares, or it is developed only in certain cases.

Necessity of drawing up the prospectus

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 issuance of shares in the business entity and contains information about the issuer and information on the significant aspects of its operation: financial position, reporting data, shareholders, etc.

This document is necessarily 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 can pass an audit, an assurance by a financial appraiser or a special adviser on securities .

Since the prospectus includes quite extensive blocks about the various components of the company's activities, it is of interest to a whole range of economic entities. It should be noted that the company itself is developing a prospectus of securities, a sample of which is not in a strictly recommended form.

The main requirement is the inclusion of all necessary information, which is set out in a provision reflecting the rules for disclosure of data by companies that issue securities.

Who is the prospectus for?

As it was mentioned, the information presented in the prospectus and disclosing the financial and economic activities of the organization will be important to a number of entities operating in the market.

Since the prospectus contains information on the effectiveness of the company and the rationale for the reasons for the issue of shares, this is primarily interesting to the shareholders themselves. Other interested parties are investors, who, based on the data provided, will form decisions on the purchase of shares.

. It should be noted that for all market participants the information disclosed in the prospectus should become available before the release .

Securities and their issue

The issuing of securities by the issuing company must necessarily correspond to a certain order of actions prescribed in the law regulating the securities market. This order includes the steps:

• Making a reasonable intention to issue shares;
• Approval of this decision;
• State registration procedure;
• Production of certificates for issued securities;
• Accommodation;
• Registration in the state body of the report on the results of the issue.

. Accounting for the issue of shares in a public authority involves issuing a permit for it with the appropriate number, which will have to participate in any subsequent operation with the issued securities .

Options for the placement of securities

The objectives of the issue of shares are: the creation of the capital of the organization, the management of capital, the attraction of financial resources and so on.

If the issue of shares is held in the form of a private placement, it is also called private, in which case no public announcement of this procedure is made. . The issued shares will be distributed in a closed circle of persons .

Another option for the distribution of securities is an open placement between persons of unlimited scope. In this case, the maximum disclosure of information is required, which is reflected in the prospectus. It is with this variant of distribution that a state registration of the securities prospectus is required. This is what will be discussed later.

Registration of the issue prospectus

The registration of the issue of securities (prospectus of emission) is obligatory for their public placement. There are a lot of ways in this case, including with the help of stock exchanges.

The approval of the issue prospectus in the relevant body is made in the following cases:

1. When the number of shareholders of the company is more than 500 people.
2. The cost of issue of shares between shareholders will exceed 50 thousand minimum wages.
3. Shares will be distributed among shareholders.
4. Assumed conversion of shares and open subscription.
5. If there is a private subscription, but if the number of persons from among the 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 grounds for refusal may be failure by the issuer to comply with the requirements of the legislation on the rules for issuing and circulating securities, the lack of payment of the necessary taxes, including, with the issue, incorrect or knowingly false information provided by the issuer .

While the organization has not been registered and has not received a positive decision from the relevant body, it is forbidden to perform any actions related to securities.

The content of the disclosed information in the issue prospectus

As was previously defined, the securities issue prospectus is the document that is developed by the issuer and contains significant information on economic activity and its effectiveness in the company.

In the event that shares are distributed by subscription or in any other public way, disclosure of information is a prerequisite. . It should be noted that not only an open but also a closed method of subscription will presuppose the design of the prospectus, if the cases described above are valid .

Ways of communicating information are different, but publication in a printed publication with a mass distribution of at least 10,000 copies is mandatory. This rule is valid for public subscription. For a closed type subscription, the circulation must be at least one thousand copies.

When publishing information, information about the issuing company, the amount of the authorized capital, the value (nominal) of the security and other essential data related specifically to the issue must be present. In addition, it is necessary to describe the appearance of the security and the means of protecting the valuable document.

Secondary issue of shares and prospectus of issue

Both primary and repeated issue of shares implies compliance with all procedural rules. If the secondary issue of shares falls under the conditions for which public disclosure is mandatory, then the securities prospectus is also the document that is to be drawn up and registered.

Bank as an issuer of securities

A banking organization, like any other economic entity of a joint-stock type, issues shares, which is predetermined by its form of ownership. General rules for the issue of securities are defined by the legislation in this area, but there are also some peculiarities.

Firstly, the procedure for issuing shares is regulated by a number of specialized laws and regulations that apply specifically to commercial banks. Thus, the instruction of the Central Bank, in which the rules for securities issued by commercial banks are issued, determines emissions only in cases when: setting up a bank, increasing the size of the authorized capital and attracting new financial resources.

The primary issue of shares is held exclusively in a closed circle. . Any securities issued by a bank are registered with the Central Bank .

Like the other securities issuer, the credit institution complies with the emission stages and must prepare the securities prospectus of the bank. Disclosure of information is also a mandatory requirement. In addition, this document must be verified and endorsed by an independent audit company.

Risk factors

Despite all the advantages of drawing up the prospectus, there are certain concerns that can be conditionally divided into several groups. They will be given below:

• Sectoral risks;
• State and regional risks;
• Financial risks;
• Legal risks;
• Risk of loss of business reputation (reputation risk) ;
• Strategic risk;
• Risks associated with the issuer's activities;
• Banking risks.

Conclusion

Each company, which by its form of education assumes the issue of shares, must comply with all procedural rules in this field of activity.

The securities prospectus is one of the mandatory documents that the issuing company must register with the state body if the issue of shares meets the requirements for public disclosure of information.