Disclosing to investors
Generally, a person must not offer a financial product unless they have prepared a disclosure document and, in certain circumstances, lodged it with ASIC (there are exemptions from this rule). The disclosure document must contain the information which the Corporations Act requires, and a number of procedural steps must be followed.
Unless an exception applies, disclosure to investors is required for off-market offers of new or existing financial products.
Generally, disclosure is not required for offers to sell an existing financial product, unless the sale is taking place within 12 months of the issue of securities (that is, shares or debentures). Disclosure may also be required for off-market sales of securities by controllers. One of two types of disclosure documents is needed when selling securities in Australia: an offer information statement (OIS) or a prospectus.
If a disclosure document is required, the general rule is that a prospectus must be prepared unless an OIS can be used. There are full, short-form and transaction-specific prospectuses.
A full prospectus is typically used for an initial public offering of securities on the Australian Securities Exchange (ASX). The Corporations Act provides general disclosure requirements for a full prospectus, which include all the information investors and their professional advisers would reasonably need to make an informed assessment of:
- the rights and liabilities attaching to the securities offered
- the assets and liabilities, financial position and performance, profits and losses, and prospects of the body that will issue the securities.
A short-form prospectus is the same as a full prospectus except that it incorporates, by reference, certain documents already lodged with ASIC. Therefore, rather than setting out all the details of a document in the prospectus, it may simply refer to a document that has been lodged with ASIC.
Transaction-specific prospectuses have fewer disclosure requirements than a normal prospectus and may only be issued by bodies that are already listed on a stock exchange.
An OIS can be used to raise up to A$10 million and has fewer information content requirements. A disclosure document for financial products other than securities is called a Product Disclosure Statement (PDS).
The Corporations Act also restricts unsolicited offers of financial products and advertisements regarding offers of financial products.