The issuance of securities is a classic form of corporate financing. It offers an interesting alternative to bank financing as, contrary to bank loans, no provision of collateral is required and the issuer can define the terms and, hence, its own refinancing costs itself. Due to the close connection between the capital and the company and the resulting interest in the company's success, it can also lead to a particularly strong customer loyalty.
Generally, shares are issued in the context of initial public offerings or capital increases. However, in addition, numerous other types of securities are suitable to raise capital and qualify for securitization. These include securities treated as shares or certificates representing shares or other securities, and debt instruments. But, a number of other securities and long-term money market instruments also come into question. Potential investors can derive all information on the securities and the issuer needed to make their investment decision from a prospectus that is made available to the public.
In addition to verifying the securities' suitability for refinancing purposes, the issuer must also keep in mind the legal provisions to be complied with in this context. In case of securitized capital market products, these primarily include the provisions of the German Securities Prospectus Act (Wertpapierprospektgesetz; "WpPG") and the European Prospectus Regulation (ProspektVO), which contain detailed specifications for the German securities prospectus to be drawn up. Pursuant to WpPG, a prospectus is strictly required when securities are being offered to the public or admitted to trading on a regulated market (e.g. stock market listing). Under the current legislation, this requirement applies to the issuer of securities whenever no valid prospectus for a specific offer is available yet and, in addition, it must be observed again in case of repeated public offers.
The specifications regarding the contents of a prospectus are laid down in the Prospectus Regulation. The prospectus provided to potential investors must contain true and full information about the security. As a consequence, when drawing up a prospectus, the issuer must, in particular, provide the following information:
- presentation and explanation of the risk factors that are specific to the issuer and its industry and/or that are likely to impair its ability to meet its obligations to investors;
- presentation of the issuer's business situation and financial position (operating and financial review);
- pro forma disclosures based on historical data concerning the issuer;
- forecasts about the future business development;
- statement of sufficiency of working capital for the current needs and information on the raising of the capital needed in the future;
- information on the identity of the persons involved in the management;
- the rights and obligations attaching to the securities.
As in case of capital market products of the unregulated capital market segment, the prospectus needs to be approved by the Federal Financial Supervisory Authority (BaFin). BaFin checks whether the prospectus contains the minimum information required by German law and whether the prospectus is easily comprehensible. However, BaFin does not examine whether the information provided is accurate. The responsibility regarding the accuracy of information provided in the BaFin prospectus continues to rest with the issuer, who is required to assume liability for drafting the prospectus pursuant to the provisions of the WpPG. The prospectus must contain a warning that the issuer is responsible for the contents of the prospectus. In this context, the liability risk in case of an incorrect prospectus should not be underestimated as legislation grants investors rights to damages based on errors in the prospectus.
The legal requirements for drawing up a prospectus continue to change and are characterized by the aim of creating a European Capital Market Union. Based on a public consultation, the European Commission, therefore, published a proposal for an amendment to the current Prospectus Regulation (2015/0268/COD), on 30 November 2015. The aim of the commission is a revision of the prospectus regimes in order to facilitate the financing of European companies and simplify the information for investors. In particular, small and mid-sized enterprises (SMEs) are intended to benefit through issuing shares and bonds. But, even issues of additional shares or bonds by issuers that have already used this form of financing are planned to be promoted. Companies seeking to raise capital can hence expect a simplified access to the capital market and should therefore examine their options for issuing securities as a means of diversifying their refinancing.
When drawing up a prospectus, the implementation the requirements of the WpPG and the Prospectus Regulation constitutes a major challenge for every issuer. The task is extremely demanding from a professional point of view and should never be addressed without professional assistance. In-depth expertise in securities law, a large experience in drawing up prospectuses and particular care are required for meeting the complex requirements set by legal provisions. Attorney Dr. Annette Wagemann and Attorney Dr. Sebastian von Allwörden (both Certified Specialists for Banking and Capital Markets Law) are your contact persons for all aspects of drawing up a prospectus. They will be pleased to provide expert advice. Please do not hesitate to contact us by e-mail (email@example.com) or by phone (+49 (0)69 76 75 77 80). We are looking forward to answering your questions.