Raising Money For Your Business
Circulating business plans: be careful not to break the law
Companies wanting to raise new equity investment have various regulatory obstacles to contend with. For a start, distributing a business plan to potential investors almost certainly amounts to making a ‘financial promotion’. The rules on making financial promotions can be complicated, but essentially they usually boil down to the following. Either the financial promotion must be approved by a person authorised by the Financial Services Authority (soon to be the Financial Conduct Authority) – which will cost money – or the financial promotion can just be sent to exempt classes of investor (which includes sophisticated investors and wealthy people). Breaking the rules on making financial promotions isn’t just a technicality – it is a crime. A little advice could save you a big headache.
Does my company need to be a PLC?
Possibly. It is perfectly legal for a private limited company (Ltd) to offer its shares to a restricted number of known new investors (but note the restrictions on financial promotions mentioned above). If, however, the circle of potential investors widens, you may need to consider re-registering your company as a public company (a PLC). This is because the investment round could be interpreted as a public offer, and only a PLC is allowed to carry out a public offer.
Do I need to produce an investment prospectus?
Hopefully not. A prospectus is a long and detailed disclosure document which must be approved by the FSA before it is sent out to investors. They are the norm for large, listed companies and take a great deal of time, effort, and expense to prepare. If a company wants to offer its shares to the public (in legal jargon, make a ‘public offer of securities’) it must publish a prospectus – unless one or more statutory exemptions apply. In most circumstances, these exemptions should be available to unquoted companies, as well as to companies listed on London’s junior markets, AIM and PLUS Quoted. Fortunately, the Government has just made two of the most commonly used exemptions more accessible. First, a company will not need to publish a prospectus if it is raising less than 5 million euros in any twelve-month period (up from 2.5 million euros). Second, a prospectus will not be needed if a public offer is made to fewer than 150 people (up from 100 people). The Government has introduced these liberalising measures as part of its policy of encouraging investment in UK business. For further guidance on raising money for your business or offering investors shares please contact a member of our Corporate team.