Raising up-to €2,500,000
The Prospectus Directive is EU
legislation requiring companies and funds structured as unregulated
collective investment schemes to prepare a prospectus when they offer
transferable securities to the public (raise money!). Within the UK,
the prospectus directive has been made law through certain sections of
the Financial Services & Markets Act, through Treasury Orders, and
through the FSA’s ‘Prospectus Rules’. These lay out the circumstances
in which a prospectus is needed and also define what it must contain.
The advantage of preparing a prospectus is that it can be used across
European countries with relatively few alterations. The disadvantages
are that it is time consuming and expensive to create a prospectus, it
is likely to involve professional advisors, and it must be approved by
the FSA. For most smaller companies and funds looking to raise money, a
full prospectus is an unnecessary complication. For this reason, there
are various exemptions to the prospectus rules and so the requirement
to prepare a prospectus does not apply to (among other things):
- “open-ended” funds;
- funds or companies
raising less than €2,500,000 or equivalent;
- funds or companies using
a minimum total consideration per investor of €50,000; or
- funds or companies
issuing fewer than 100 offers (per EEA member state)
Less than €2,500,000
If the fundraising is for less
than €2.5m, it is exempt from the requirement to prepare a prospectus,
however the fundraising total must include any other amounts raised in
the preceeding 12 months. For example, if a fund or company is looking
to raise €2m having raised €1m six months earlier, it is unlikely that
they can rely on this exemption.
Minimum Investment of €50k
If the fund or company will not
accept an investment of less than €50k from any investor, it is exempt
from the requirement to prepare a prospectus. It will be necessary to
ensure that this lower limit is not breached because that would mean
that the entire fundraising would become subject to the prospectus
rules and the issuer of the security, along with the person who makes
the offer on their behalf will be responsible for providing a
satisfactory prospectus.
Restricted to fewer than 100 offers
If fewer than 100 potential
investors receive an offer, the fund or company is exempt from the
requirement to prepare a prospectus. It is not relevant from whom the
approach comes, whether directly from the company or through any other
route and it is the total number of end recipients which must be
counted.
Investors can be excluded from the total if, at the time of the
approach, they were a Qualified Investor registered with the FSA, an
authorised person, or a High Net Worth Company (as defined by the FSA
and EU rules).
Other Vehicles
It should be noted that the the
Prospectus Rules apply to closed-ended funds and certain other vehicles
like partnerships and companies. If another vehicle is used, different
rules may apply. For instance, a open-ended fund is likely to fall
outside the Prospectus Directive but will still be governed by the
rules applying to Unregulated Collective Investment Schemes, Financial
Promotions and Regulated Activity.
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Business Plans
Bank,
Angel, Private Investor, Venture Capital, or Institutional |
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