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What requirements does a prospectus have to meet?

Publication date: 26 June 2019
New rules apply to a prospectus for the offer of shares or bonds from 21 July 2019 onwards. Then the prospectus must contain a risk analysis, a clear summary, essential information about the share and the company issuing the shares and it must be drawn up in Dutch or English. The company and the directors can be held liable of the information is incorrect or misleading.

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From 21 July, because of the Prospectus Directive (Implementation) Act there will be new rules for the prospectus which must be published when securities are offered to the public (IPO) or are admitted to the trade on a regulated market (listing). What requirements does a prospectus have to meet – based on the (new) law – to obtain the approval of the Netherlands Authority for the Financial Markets (AFM)? These are the most significant requirements:

1. Risk factors

All material risks for investors which are specific to the issuer must be included in the prospectus. They are subdivided in categories and per category the most significant risks must be named first. Simply mentioning a risk is not enough; it must be explained why this particular risk is run and what the likelihood of it being run is.

2. Summary

The prospectus must include a summary consisting of four departments with essential information about:

  1. the issuer,
  2. the securities,
  3. the offer or admission to trading, and
  4. some mandatory investor warnings.

The summary must be easy to read, with brief, concise texts that are easy to understand for investors. Technical terms are not allowed.

No one can be held liable on the basis of the summary or a translation thereof alone. However, there is an exception to this rule if the summary, when read together with other parts of the prospectus, is:

  • misleading, inaccurate or inconsistent, or
  • does not contain the essential information to aid investors when they consider investing in those securities.

3. Required information

The information to be included in the prospectus shall include, inter alia, the following:

  • how the securities offers can be bought and sold;
  • the cost of the offer to be borne by the investor;
  • the way in which the value of the security can be determined or changed;
  • the dividend policy;
  • the activities and organisational structure of the issuer of securities;
  • the financial position of the company offering the securities;
  • the directors and major shareholders of the companies that issues the shares.

4. Language requirements

The prospectus has to meet the language requirements of the country in which the securities are offered or listed on the stock exchange. If that offer or listing takes place in the Netherlands, the prospectus must be drawn up in Dutch or English. It is therefore possible to draw up the prospectus in English only.

5. Understandability

The  prospectus must be written in understandable language (similar to plain English) and the prospectus must be put together consistently and understandably. Reference tables have to be included that indicate exactly where the required information can be found that was not included in the prospectus.

(Director’s) liability and powers of the Netherlands Authority for the Financial Markets

If a prospectus contains wrong or misleading information, an investor who has been adversely affected may hold the issuer, or even its directors, liable. In addition, the AFM may suspend or prohibit the offer of securities if the Prospectus Regulation is infringed. Under certain conditions, the AFM may also suspend or prohibit trading in securities or trading on a trade platform.

More information

Would you like to have a prospectus checked? Or do you want more information about prospectus liability or director’s liability? Please contact us:

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