Styperson POPE

Strategy & Compliance for Investment Firms

Prospectus Exemptions… myths & misunderstandings

We see a lot of clients who really want to avoid having to prepare a prospectus.  Sometimes, I’m not sure all the effort is worthwhile and it may be better to take another look at the costs and time involved in putting a prospectus together if it makes the marketing easier – generally, it’s not as bad as you’d think.  Nonetheless, this article is about the exemptions, or rather about some of the imaginary exemptions we’ve heard of recently.  Our basic guide to the real exemptions can be found by clicking here.

“If working within the limit of 99 people, can’t Sophisticated Investors be excluded from the total?”

No.  It’s true that certain investors can be excluded but the only kind of private individuals who can be excluded are ‘Qualified Investors’.  These must be registered with the FSA and meeting the criteria  for sophistication is not helpful in meeting the requirements to be qualified investors (which are much closer to the criteria for an elective professional investor under MiFID).

“If relying on the minimum investment of €50k, is it OK to quote this in the literature but actually accept less than this?”

Again, no.  Generally speaking, saying one thing and doing another is a recipe for upsetting investors and getting sued.  Apart from this, the relevant rule states that “a person does not contravene section 85(1) if… the minimum consideration which may be paid by any person for transferable securities acquired by him pursuant to the offer is at least 50,000 euros”.  I suppose if you have a really good lawyer, you could get into a debate about the meanings of “may” and “pursuant” but I think we all know what the rule intends and I wouldn’t want one of my clients to be in the dock while the case law is being made. 

“Is it true that the prospectus rules don’t apply to funds which are unregulated collective investment schemes?”

Sorry, yet again, no.  The rules apply to most ‘transferable securities’ including shares in companies and units in partnerships (how most funds are structured).  It is true that there is a list of exempt investment types and that this list includes open ended funds but most smaller, unlisted or unregulated funds won’t qualify as open ended (even if they think they do).  They can, however, use one of the other exemptions.  It is worth noting that any fund listed on the LSE’s Specialist Fund Market must prepare a prospectus even if it otherwise falls into one of the exemptions.

With experience of the prospectus directive within both corporate finance and fund establishment, StypersonPOPE can help you plan which exemptions to use. For an initial discussion, please call or e-mail Simon Webber, StypersonPOPE‘s Managing Director.

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