A company that requires an injection of capital and wishes to raise the capital quickly, often turns to the public to sell its securities to, to obtain the required capital.
The company will make an offer to the public of its securities and must tread carefully to ensure that it complies with the applicable legislative regime and / or the stock exchange rules when doing so. A failure by the company to adhere to and comply as required, may result in criminal liability for its directors.
Chapter 4 of the Companies Act (the “Act”) regulates the making of ‘offers to the public’. Compliance with Chapter 4 is administratively burdensome and a costly process. Companies will rather avoid compliance with Chapter 4 if at all legally possible.
If the process followed by a company is, in substance albeit not in form, an ‘offer to the public’ of its securities, the company must comply with Chapter 4. Should a company attempt to avoid / circumvent compliance with the provisions of Chapter 4 through ‘clever footwork’, such company may fall foul of the anti-avoidance provisions of the Act and be held liable.
The main purpose of legislation such as Chapter 4 of the Act is to protect the public from investing capital in a company without the public having access to the detail of such investment (usually provided in a prospectus) to assess the risk involved. Chapter 4 of the Act provides for circumstances in which offers made to the public are not regarded as an ‘offer to the public’ and is exempted from compliance with the remainder of the Chapter.
Whether an ‘offer’ is made to the ‘public’ must also be tested within the specific circumstances applicable to each case. It may be that the process followed by the company in particular case, do not constitute an ‘offer to the public’ and requires no compliance with Chapter 4.
It is advisable to always consult with experienced professionals before embarking on a process to engage the public for investment purposes as the process involves complex and specialised matters that must be carefully considered before embarking on such process.
The above is a brief and general discussion intended as an overview of the topic only. It does not constitute advice in any manner or form, nor is it an exhaustive discussion.