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Equity Instruments
Regulations on equity instruments are aimed at creating a balance between the protection of investors and effective fund mobilization. The SEC considers qualifications of securities issuers and supervises the disclosure of information in order for the investors to have sufficient information in making an investment decision.
Regulations on issuing equity instruments are aimed at protecting the following group of investors:
New investors purchasing securities – the company is required to have appropriate qualifications and disclose sufficient information for investors to make an informed investment decision.
Existing shareholders affected by dilution – the company must disclose clear and sufficient information in the notice calling shareholders' meeting and the shareholders are granted the right to vote or to veto.
Securities holders in subsequent orders – the company must clearly disclose terms and conditions of the securities (if there is any) and must disclose sufficient information for making an investment decision.
The levels of regulations will depend on the type of securities being offered; whether they are existing or new securities and whether they are offered privately or publicly. These are important factors to determine the level of impact:
Type of securities | Who offers the securities | Nature of offers | Regulations |
New securities | Public company limited | Private Placement | General approval / no duty to disclose information |
| | Public Offering | Require approval / disclosure of information |
Existing securities | Owner of the securities | Private Placement | General approval /
no duty to disclose information |
| | Public Offering | Require approval / disclosure of information
|
Impact and mechanisms to preserve the right of stakeholders
Type of offers | Stakeholders | Impact | Mechanism to preserve rights |
Rights Offering (RO) | Shareholders | None | Require approval of the shareholders |
Private Placement (PP)
| Shareholders New investors (private placement) | Dilution effect Access to information | Require approval of the shareholders Self-preservation of rights/ general approval from the SEC Require approval of the shareholders with disclosure of sufficient information in the notice calling shareholders' meeting and granting of the right to veto / request approval from the SEC |
Employee Stock Option Program (ESOP) | Shareholders Director/ employee | Dilution effect Access to information | Require approval of the shareholders Self-preservation of rights/ general approval from the SEC |
Public Offering (PO) | Shareholders New investors (public) | Dilution effect Access to information | Require approval of the shareholders Require approval from the SEC / disclosure of information
|