The prospectus is the cornerstone of any initial public offering. This dense, regulated document has a dual mission: to inform potential investors and to engage the responsibility of the company going public. Inaccurate information or omissions can have considerable legal and financial consequences. Preparing for an IPO is a demanding process that requires a thorough understanding of the obligations involved, as detailed in our complete legal guide to initial public offerings. This article focuses on the rules governing the drafting, validation and distribution of the prospectus, as well as the resulting responsibilities.
The prospectus requirement: grounds and exceptions
The publication of a prospectus is a legal requirement prior to any admission of financial securities to a regulated market or for any offer to the public. The purpose of this document is to ensure that investors have complete, accurate and comprehensible information on which to base their decision. The aim is to enable them to make an informed assessment of the assets and liabilities, financial position, results and prospects of the issuer, as well as the rights attached to the securities offered.
Transactions subject to prospectus (regulated market, public offering)
There are two main situations that trigger the obligation to publish a prospectus. The first is the application for admission of financial securities (shares, bonds) to trading on a regulated market, such as Euronext Paris. This process, which is designed to enable securities to be traded on an organised market, requires maximum transparency. The second situation involves a "public offer" of financial securities. This concept, defined by article L. 411-1 of the French Monetary and Financial Code, covers any communication providing sufficient information about the securities to be offered and the terms of the offer to enable an investor to decide to buy or subscribe to them. It also includes any placement of securities by financial intermediaries.
Exemptions from publication of prospectuses
The legislator has provided for several cases of exemption for transactions which, by their nature, their volume or the quality of the targeted investors, do not justify the burden of a full prospectus. For example, publication is not required for the admission of new shares if, over twelve months, they represent less than 10 % of the number of shares of the same class already admitted to the same market. Similarly, an exemption is granted for offers addressed exclusively to qualified investors (financial market professionals) or to a restricted circle of investors. Exemption is also granted for small-scale transactions, bonus share issues to employees or conversions of bonds into shares, because the information is deemed to be already available or the investors sufficiently well-informed.
Specific cases: equity lines and PACEO
Equity line financing or Programmes d'Augmentation de Capital par Exercice d'Options (PACEO) are mechanisms by which a company can raise funds in a flexible and staggered manner. A financial intermediary undertakes to subscribe to successive capital increases, often at a discounted price, and then rapidly sells the shares on the market. Because of the transfer of risk to the public, the Autorité des Marchés Financiers (AMF) considers that the implementation of such a programme must, in principle, be covered by a prospectus. However, an exemption is possible if the total number of shares to be issued over a twelve-month period represents less than 10 % of the company's share capital.
Drawing up the draft prospectus
The drafting of the prospectus is a rigorous exercise, governed by European and national standards. It is carried out by the issuing company with the assistance of its advisers, in particular its lawyers and the introducing banks.
Form of document (single document, reference document, securities note)
The prospectus can take two forms. It can be a single document that brings together all the information in one go. Alternatively, it can be structured into several separate documents, an approach often favoured by regular issuers. This tripartite structure comprises :
- The reference document (or "document de base" for a first-time listing): this provides a comprehensive presentation of the issuer, its activities, financial position, risk factors and corporate governance. It may be registered annually with the AMF.
- The securities note: this specifically describes the securities being offered (shares, bonds) and the terms of the transaction (price, timetable, etc.).
- The prospectus summary: this summarises the key information in a clear and concise manner.
Detailed content (diagrams, modules, summary)
The content of the prospectus is defined by European Regulation (EC) 809/2004, which provides for standardised information schemes and modules depending on the nature of the issuer and the securities. The aim is to guarantee uniform and comparable information. The document must cover in detail points such as the company's strategy, the audited accounts for the last few financial years, the risks associated with the business and the market, the identity of the directors and main shareholders, and the planned use of the funds raised. The executive summary is essential. Written in non-technical language, it should not exceed 2,500 words and should enable an investor to quickly understand the main characteristics and risks of the transaction. It must include a warning that it is only an introduction and that any investment decision must be based on an examination of the prospectus in its entirety.
Language used and translation
In principle, when a transaction takes place in France, the prospectus must be written in French. However, there is an important derogation: it may be drafted in a "language customary in the sphere of finance", which in practice almost always means English. This flexibility is crucial in attracting international investors. In this case, the summary of the prospectus must be translated into French to ensure that the essential information is accessible to the French-speaking public.
Prior approval from the Autorité des Marchés Financiers (AMF)
No prospectus may be distributed to the public without first obtaining the "visa" of the AMF. This approval is not an endorsement of the investment opportunity, but a statement that the document is complete, understandable and that the information it contains is consistent.
AMF jurisdiction: criteria and European passport
The AMF's authority to approve a prospectus is determined by the issuer's registered office. If the issuer's registered office is in France, the AMF is the competent authority for the entire European Economic Area. Thanks to the "European passport" mechanism, a prospectus approved by the AMF in France is valid in all other EU countries without any further approval procedure. Conversely, a German company whose prospectus has been approved by the German authority (BaFin) can use it for an offering in France, after simply notifying the AMF.
Visa procedure (normal, simplified)
The normal procedure begins with the filing of a draft prospectus with the AMF. The AMF examines the prospectus, checking that it complies with regulations. They may request amendments or additional information. Once the application is deemed complete, the AMF issues its approval within ten trading days, or twenty days for an initial public offering. For frequent issuers who already have an updated registration document, a simplified and faster procedure is possible. Under this procedure, approval can be obtained by focusing solely on the securities note and the summary.
Suspension and prohibition rights of the AMF
The AMF has extensive powers to protect the market. If it has reasonable grounds to suspect that a transaction is in breach of the law, it can suspend the offer or listing for up to ten days. If it finds a proven breach of legal and regulatory provisions, it may go so far as to prohibit the transaction outright. These prerogatives illustrate the AMF's power to impose sanctionswhich acts as the guardian of market integrity and investor protection.
Distribution of the prospectus to the public
Once approved, the prospectus must be made available to all potential investors prior to the start of the transaction, so that they have sufficient time to analyse it.
Deadlines and distribution methods
The prospectus must be distributed within a reasonable time before the offer begins. For an initial listing, this period is at least six trading days before the closing of the transaction. Dissemination may take place by several means, but the issuer must combine at least two to ensure broad accessibility. The main methods are: publication in a financial newspaper with national circulation, free distribution of paper copies at the company's head office and to financial intermediaries, and posting on the issuer's website and that of the AMF.
Liability for inaccuracies
The information contained in the prospectus is the responsibility of several parties. Misleading or inaccurate information or a material omission may give rise to legal action by investors who consider themselves wronged.
Liability of the issuer and its directors
Primary responsibility lies with the issuer and its management. The prospectus must clearly identify the persons responsible for it, generally the chief executive officer or the chairman of the board of directors. The latter sign a certificate stating that, to the best of their knowledge, the information is accurate and contains no omission likely to affect its import. The AMF has already imposed sanctions on executives for disclosing unrealistic sales forecasts or accounting documents that were tainted by irregularities.
Statutory auditors' liability
As statutory auditors, the statutory auditors are responsible for the financial information. Their task is to certify that the annual, consolidated or interim financial statements presented in the prospectus are true and fair and give a true and fair view. They formalise their work in a "lettre de fin de travaux" submitted to the issuer and the AMF, which, although not distributed to the public, is a key element in the process of internal validation of the information.
Responsibility and due diligence of investment services providers (ISPs)
Financial intermediaries (introducing banks, lead managers) involved in the transaction also have a duty of care. They must provide the AMF with a statement confirming that they have performed "normal professional due diligence" and that they have detected no material inaccuracies or omissions. This due diligence involves a critical examination of the information provided by the company, through interviews with management and documentary consistency checks. Their role is not to verify accounting accuracy, which is the responsibility of the statutory auditors, but to ensure the overall consistency and relevance of the information. This involvement involves bank liability as an investment services provider.
Solent Avocats: securing your listing prospectus
Drawing up an IPO prospectus is a highly technical legal operation that exposes the company and its directors to significant liability risks. The role of an expert law firm is to secure this process at every stage. Our team assists companies in structuring the document, validating the compliance of the information with the dense and constantly changing regulations, and coordinating with all the parties involved (AMF, financial intermediaries, statutory auditors). Calling on our expertise in banking and financial lawThis means ensuring that the prospectus fulfils its information function while protecting the company against the risk of litigation.
The complexity of the rules applicable to the prospectus and the associated financial and legal issues make tailored support essential. If you are considering an IPO, contact our firm for an analysis of your project.
Sources
- Monetary and Financial Code
- Commercial code
- General regulations of the Autorité des Marchés Financiers (AMF)
- Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 ("Prospectus Regulation").
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