The Concept of a Public Offer
The foundation of an IPO is the public offer of securities. Under the Law on Securities Market, a public offer is a proposal to at least 100 persons, or to an unspecified number of persons, for the direct or indirect sale of securities in the name of the issuer. A proposal of the same kind connected with the securities of an unlisted enterprise, raised in the name of a person who is not the issuer, is also treated as a public offer. The issuer must conclude with a brokerage company or a licensed financial institution an agreement on the offer of securities for their placement. It is important that an offer and sale only to experienced investors is not treated as a public offer, while during a public offer the holder of securities of another issuer may also propose to the issuer that his or her own securities be included in the offer. This threshold definition determines from the outset whether the transaction falls within the strict public-offer regime or remains a private placement.
The Prospectus and the Application
A public offer is carried out only upon the publication of a prospectus prepared and approved in compliance with the law and the rules of the National Bank. The National Bank examines the application within 15 days of submission: where deficiencies exist it requests additional information, where conformity exists it approves the prospectus, and where the requirements are not met it refuses approval in writing; if no information is provided within 15 days, the prospectus is deemed approved. The preliminary prospectus contains information about the issuer — its name, address, date of foundation, the quantity and class of placed securities, the names of the members of the governing organ and information on possible conflicts of interests; a description of the activity of the last 2 years together with the main risks; the auditor-confirmed financial statements for the last 2 economic years; the class and approximate quantity of the securities to be issued, the details of the subscription procedure and the intended use of the proceeds. The current financial information indicated in the final prospectus must not be older than 18 months. No later than 10 days after the approval of the preliminary prospectus the issuer submits to the National Bank the document on the terms of the offer.
The Offering Procedure and Amendments
The final prospectus is made available to investors before the start of the sale, at its start or in the course of the sale. Where an essential circumstance changes during the offer period — including the quantity of securities or the final term of the offer — the issuer submits an amendment to the National Bank, publishes a notice and declares the cancellation of the offer in its existing form. Subscribers then have the right to refuse the securities purchased, and the issuer must refund the price within 10 days of the refusal; those who do not refuse become subject to the new terms of the offer. Where, after the start of the sale, the National Bank learns that an essential circumstance in the approved prospectus is incorrectly presented or omitted, it is entitled to require the issuer to perform these procedures. The discipline of amendments is thus not optional: an error in the prospectus can reopen the whole offering at the stage when the funds are already being collected.
The Accountable Enterprise and Continuous Reporting
A public offer moves the issuer into a regime of permanent obligations. An accountable enterprise is an issuer of public securities founded in accordance with the Law on Entrepreneurs. The issuer is obliged to prepare, submit to the National Bank and publish an annual report containing the auditor-confirmed financial statements, a governance report and a declaration of the responsible persons that the reports are complete, correct and fair. The annual report is submitted and published after the end of the economic year but no later than 15 May, and where the financial year differs — within 4 months of the end of the financial year. An issuer of public debt or equity securities also prepares a semi-annual report for the first 6 months and submits it by 30 August of the current year. The National Bank is entitled to set different and additional requirements for corporate governance and reporting. For a company considering an IPO, these continuing costs must therefore be weighed together with the one-off costs of the offering itself.
Frequently Asked Questions
How many recipients make an offer public?
A proposal to at least 100 persons or to an unspecified number of recipients; an offer only to experienced investors is not treated as a public offer.
Within what period does the National Bank examine the application?
Within 15 days of submission; if no information is provided within that period, the prospectus is deemed approved.
What financial information is needed for the prospectus?
Auditor-confirmed statements for the last 2 economic years, and the current financial information in the final prospectus must not be older than 18 months.
What reporting obligations follow an IPO?
An annual report for every issuer, and additionally a semi-annual report for issuers of public debt or equity securities.
How We Help on Legal.ge
Preparing for an IPO requires the harmonious planning of documents, deadlines and reporting. Our team will help you prepare the preliminary and final prospectus, communicate with the National Bank and manage the offering procedure. Contact Legal.ge and we will plan your public sale with minimized risk.