If a public company is not issuing a prospectus on its formation it must file a statement in lieu of prospectus also known as a substitute prospectus or substitute circular. This statement is issued with the registrar of companies.
What is a statement in lieu of prospectus
The term ‘statement in lieu of prospectus’ simply means a statement in place of a prospectus. A statement in lieu of prospectus is a statement issued ‘in place’ of a prospectus by a public unlisted company. It is a statement or public document prepared by public companies which do not issue a prospectus on their formation. This statement contains all the information contained in a prospectus and it is signed by all the directors of the public company or the proposed directors of the public company. If the company does not file a statement in lieu of prospectus it will not be allowed to allot any shares or debentures.
Contents of a statement in lieu of prospectus
- Details of the company including its name and address
- The main objectives of the company
- Statement of capital
- Products or service description
- Details of the directors including their names addresses and occupations
- Property details
- Directors interests
- Material contracts
- Minimum subscriptions
- A summary of the company’s background and financial information
- The details of the firm’s directors, secretaries, treasurers and managers
Both the prospectus and a statement in lieu of prospectus contain the same information, but their differences are outlined below.
| Statement in lieu of Prospectus | Prospectus |
| · Filed by a public unlisted company
· A legal document issued by a company when it does not offer securities to the public · The statement in lieu of prospectus is filed with the registrar of companies only · This statement is used when the company wants to raise funds privately · The information of a statement in lieu of prospectus is similar to that of a prospectus, but the information is brief · Distribution of the statement in lieu of prospectus is not mandatory because any capital required is obtained privately · It is not compulsory to state the minimum subscription in a statement in lieu of prospectus |
· Filed by a public listed company
· A legal document inviting the public to subscribe to the company’s shares · Filed with the securities exchange commission and submitted to the registrar and shareholders · This is used when the company intends on raising funds from the public · The contents of a prospectus are prescribed by the company’s act · It is mandatory to distribute a prospectus since the required capital is raised publicly · It is compulsory to state the minimum subscription in a prospectus |
The major differences between a prospectus and a statement in lieu arise from the objectives of each statement. A prospectus is published in order to invite the public to subscribe in the firm’s shares whilst a statement in lieu is filed when a public company doesn’t invite the public to raise funds. In addition, some of the contents in a prospectus are not mandatory when it comes to a statement in lieu of prospectus and are not written detail.
Conditions where a company can issue a statement I lieu of Prospectus
- When a private company goes public
When a private company goes public by passing a resolution to convert itself to be a public company it must deliver a prospectus or a statement in lieu of prospectus with the registrar of companies.
- When the allotment of shares or debentures has not been made
A statement in lieu of prospectus is also issued when a public company has not proceeded to allot any of the shares offered to the public for subscription. This normally occurs when the issue has failed and the minimum amount in subscriptions has not been received.
