The stock market is a place where people can buy and sell shares of public-listed companies. It gives investors a chance to own shares in these companies, while enjoying dividends received from the investment. The stock market also provides companies access to new capital to fund their business activities, potentially at a lower cost compared to borrowing.
In general, anyone who has capital (money) can invest in the stock market. Familiarising yourself with the companies/investment products you are interested to invest in, particularly by reading the prospectus, can help you to protect your capital investment and avoid losses. The prospectus is a legal document and contains details relating to the offering of investment to the public. It is normally issued in relation to initial public offerings, rights issue exercises and offerings of investment products (e.g. unit trust and structured warrants).
This leaflet aims to explain:
- what investors should look for when reading a prospectus;
- who the regulatory bodies involved in the issuance of a prospectus are;
- whether unlisted public or private limited companies are required to issue a prospectus; and
- how to obtain a prospectus.
After reading this leaflet, you as an investor will be aware of how important the prospectus is to your investment decision process.
What Should Investors Look for When Reading a Prospectus?
The prospectus is the most important document that you need to obtain and review thoroughly before deciding to invest. It contains vital information about the investment, such as its objectives, risk factors, historical financial performance, fees and charges, and others.
To be able to make an informed investment decision, you should read and understand:
- information about the company’s business, its history and future plans;
- purpose of raising funds and the proposed utilisation of these funds;
- risks related to the company;
- profile and background of the company’s major shareholders, board of directors and key management personnel;
- nature of the industry in which the company operates, including who its competitor’s are and its prospects in the industry;
- management’s experience and expertise in running the business;
- track record of the company’s financial performance over the past three to five years; and
- dividend distribution policy of the company.
The above information should help you to assess and decide whether the investment and the risks involved are suitable for you.
If you have any questions, please seek clarification from an authorised person who is licensed by the Securities Commission Malaysia (SC) to provide professional advice before making a decision.
Who Are the Regulatory Bodies Involved in the Issuance of a Prospectus?
Companies intending to offer shares to the public in Malaysia and/or to be listed on Bursa Malaysia Securities Berhad (Bursa) are required to obtain approval from the SC and/or Bursa. A prospectus relating to the offering of shares MUST be registered with the SC and lodged with Companies Commission of Malaysia (CCM) before it can be issued and the offer of shares can be made to the public.
As an investor, before reviewing a prospectus for investment decision, you should make sure that the prospectus has been registered with the SC and lodged with CCM.
Do Unlisted Public or Private Limited Companies Have to Issue a Prospectus?
Unlisted public limited companies and private limited companies do not require the SC’s approval to offer shares to the public. However, a prospectus relating to the offering of shares MUST be registered with the SC and lodged with CCM before it can be issued and the offer of shares can be made to the public. This is to ensure that investors are provided with adequate information on the companies (such as its business and historical financial results) for them to make an informed investment decision.
You should be aware that many operators of illegal investment schemes try to offer shares (without issuing the prospectus) via unlisted public limited companies or private limited companies.
In addition, unlisted public limited or private limited companies may fall under the SC’s purview if they are undertaking activities regulated by the SC, such as dealing in securities, investment advice or fund management involving securities. If a scheme involves a regulated activity, the company and individuals involved would require a licence from the SC for the activity concerned, therefore please ensure that the person you are dealing with is a legitimate and qualified financial adviser. In the event of misconduct, they would also be accountable to the SC under the terms of their licence.