The prospectus : is it a selling or a liability document?

Abstract

If there is one key word which more than any other sums up the underlying principles of company law in the UK, it is disclosure. This has been true ever since companies were accorded the twin privileges of incorporation and limited liability by the legislation of 1844 and 1855; and the notion features prominently both in the parliamentary speeches of that time and in judgments of the courts in company law cases of every decade since. It recurs in the reports of every successive company law committees and in the papers of every hue - green and white, socialist pink and tory blue - in which programs for reform are announced or advocated. 'There has been a growing appreciation for the need for fuller disclosure of information by companies' we read 'as a spur to efficiency' a safeguard against malpractice', an essential part of the working of a fair and free economic system', and as 'the first principle in securing responsible behaviour.' The bias must always be towards disclosure, with the burden of proof thrown on those who defend secrecy.' The more people can see what is happening, the less opportunity there is for concealing improper and even criminal activities.' Consequently, one of the focus of many of the leading decisions in the field around the end of the last century and one of the earliest major concerns of company law was to protect investors against being duped into putting their money into financially unsound companies. Rather under this policy it was felt that the state should adopt a minimum interventionism by requiring disclosure as to specified matters perceived to be material to the judgement of potential investors. Beyond this, the state should not attempt any merits review of the efficacy or equity of the proposed venture or of the interests in it which are being offered to the public. Brandeis' phrase is the most eloquent justification of this policy: "Sunlight is said to be the best of disinfectants, electric light the most efficient policeman." However, before the Companies Acts addressed themselves to this matter, there were two governing principles. Where the investor simply acquires securities from an existing shareholder or holder of debentures, the maxim caveat emptor applies; the purchaser buys at his own risk,