The UK government has introduced measures designed to enable more companies to raise equity finance without the burden of issuing a prospectus.
A prospectus is essentially a formal marketing document containing details of a proposed investment opportunity which is designed to allow investors to make an informed decision before parting with their hard earned cash. Such a document is legally required before shares in a company can be offered to the public, unless one or more exemptions apply.
With effect from 31 July 2011, the scope of two exemptions has been extended as follows:
- the number of persons to whom an offer of shares (or other “transferable securities”) may be made before a prospectus is required has been increased from 100 to 150; and
- the aggregate size of the offer that may be made before a prospectus is required has been increased from €2.5m to €5m.
The above changes, which derive from an EU directive, have been implemented in the UK 12 months ahead of schedule.
Although any measures designed to help companies raise money have to be welcomed, many small businesses will no doubt feel that far more still has to be done in order to improve access to both equity and loan finance.
Nevertheless, it is important that businesses are mindful of the possibility of raising equity finance as an alternative to collaring their relationship managers at the bank.
As a corporate member of LINC Scotland (the national association for business angels in Scotland) and having advised numerous early-stage companies on funding rounds with an aggregate investment value of circa £5m over the past 2.5 years, no-one is better placed in the region to assist in this niche area.Kirk Dailly Associate