3. Equity Financing
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3. Equity Financing

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Questions and Answers

What must a prospectus contain to meet investor needs?

  • Executive summaries of all company operations
  • Projected future earnings of the company
  • All information reasonably required by investors to make an informed assessment of the shares (correct)
  • Exclusive offers only available during the IPO
  • Who is responsible for preparing the prospectus?

  • The issuer and its advisers (correct)
  • Financial analysts only
  • The investors involved
  • A designated government agency
  • What type of liabilities can arise from omissions and misleading statements in a prospectus?

  • Only civil liability with no criminal implications
  • Liability only if the prospectus is deemed inaccurate by ratings agencies
  • No liability as long as it is a preliminary document
  • Criminal and civil liability (correct)
  • Which of the following is NOT a method of IPO marketing?

    <p>Independent audits</p> Signup and view all the answers

    What is one of the continuing obligations for companies post-IPO?

    <p>Disclosure of material information</p> Signup and view all the answers

    Which of the following is a periodic financial reporting obligation?

    <p>Regularly presenting updated financial statements</p> Signup and view all the answers

    What is a key component of corporate governance in the context of continuing obligations?

    <p>Ensuring ethical behavior and compliance with laws</p> Signup and view all the answers

    When conducting IPO marketing, which of the following is considered a traditional approach?

    <p>Roadshows</p> Signup and view all the answers

    What is a common reason for companies to issue shares?

    <p>To gather funds when restricted on borrowing</p> Signup and view all the answers

    Which of the following is a source of private equity investment?

    <p>Government schemes like Startup SG</p> Signup and view all the answers

    What is a share subscription agreement primarily used for?

    <p>To set terms and conditions of the share purchase</p> Signup and view all the answers

    Which of the following describes a key step involved in the IPO process?

    <p>Pre-IPO restructuring if needed</p> Signup and view all the answers

    Which of the following is NOT an applicable prospectus exemption?

    <p>Offer to the general public without restrictions</p> Signup and view all the answers

    Which primary document provides protective provisions for investors?

    <p>Shareholders’ agreement</p> Signup and view all the answers

    What characterizes the SGX-ST Mainboard listing requirements?

    <p>It requires profitability or market capitalization</p> Signup and view all the answers

    What is generally required during the IPO process after prospectus drafting?

    <p>Registration of prospectus with the MAS</p> Signup and view all the answers

    Which of these describes exit mechanisms within a shareholders’ agreement?

    <p>Methods for investors to sell their shares</p> Signup and view all the answers

    What is one of the main benefits of corporate venture capital investors?

    <p>They offer mentorship along with investment</p> Signup and view all the answers

    Which of the following best describes the purpose of a prospectus?

    <p>To assist investors in making informed assessments of shares</p> Signup and view all the answers

    What is a cornerstone investor typically involved in during an IPO?

    <p>Securing a large portion of shares before the public offering</p> Signup and view all the answers

    Which of the following represents a continuing obligation for a company after an IPO?

    <p>Providing disclosure of material information</p> Signup and view all the answers

    What is the role of roadshows in the IPO process?

    <p>To create public awareness and generate investor interest</p> Signup and view all the answers

    Which of the following is NOT typically a method of IPO marketing?

    <p>Direct market access for retail investors</p> Signup and view all the answers

    Which situation could lead to criminal and civil liability under a prospectus?

    <p>Failing to disclose a significant risk associated with the investment</p> Signup and view all the answers

    Which of the following is a key aspect of corporate governance in the context of post-IPO ongoing obligations?

    <p>Enhancing board independence from management</p> Signup and view all the answers

    What is the most important characteristic of a prospectus as it pertains to investor protection?

    <p>It must provide comprehensive and transparent information</p> Signup and view all the answers

    What is one primary reason companies may opt for equity financing instead of increasing their debt?

    <p>Existing debt levels</p> Signup and view all the answers

    Which of the following is a type of exemptions for prospectus offers?

    <p>Small offer</p> Signup and view all the answers

    What is a critical component of the shareholders’ agreement regarding investors?

    <p>Exit strategies for investors</p> Signup and view all the answers

    Which group represents a source of private equity investment?

    <p>Venture capital firms</p> Signup and view all the answers

    In the IPO process, what is a prerequisite that may need to occur before due diligence?

    <p>Pre-IPO restructuring</p> Signup and view all the answers

    What regulatory body's approval is typically required for a company to be listed on the SGX-ST?

    <p>The Monetary Authority of Singapore (MAS)</p> Signup and view all the answers

    Which aspect relates to the limitations on the number of shareholders in a private equity context?

    <p>Applicable prospectus exemptions</p> Signup and view all the answers

    Which characteristic primarily differentiates the SGX-ST Catalist from its Mainboard?

    <p>No prior profit track record needed</p> Signup and view all the answers

    Which document outlines the terms and conditions of share subscriptions?

    <p>Share subscription agreement</p> Signup and view all the answers

    What aspect of public offer shares involves assessment by sponsors?

    <p>Assessment of suitability</p> Signup and view all the answers

    Study Notes

    Why issue shares?

    • Increase the company's capital
    • Reduce the company's borrowing
    • Improve the company’s credit rating

    Common methods of equity financing

    • Private investment via subscription agreement (e.g. venture capital)
    • Public offer of shares (e.g. Initial Public Offering (IPO))

    Sources of private equity investment

    • Friends and family fundraising rounds
    • Angel investors
    • Government schemes (e.g., Startup SG)
    • Singapore accredited start-up incubators
    • Corporate venture capital investors

    Applicable prospectus exemptions

    • Small offer
    • Offer to no more than 50 persons
    • Offer to accredited and/or institutional investors

    Additional considerations

    • Limit on the number of shareholders
    • Approval of existing shareholders

    Principal documents

    • Share subscription agreement
      • Sets out terms and conditions of subscription
      • Includes warranties as to the state of the company
    • Shareholder’s agreement
      • Protective provisions for the investors - corporate governance rights
      • Anti-dilution mechanisms
      • Transfer restrictions
      • Exit mechanisms

    Public Offer of Shares

    • Singapore Exchange Securities Trading Limited (SGX-ST)
      • Mainboard:
        • Higher entry and listing requirements
        • Profitability or market capitalisation requirements
      • Catalist:
        • No minimum quantitative entry criteria
        • Assessment of suitability by approved sponsors

    Key steps for an IPO

    • Pre-IPO restructuring
      • Conduct due diligence
      • Prospectus drafting
      • Submission of listing application to the SGX-ST
      • Submission of the draft prospectus to the Monetary Authority of Singapore (MAS)
      • Review by and responding to queries from the SGX-ST and the MAS.
      • Negotiation of legal documentation such as the underwriting agreement
      • Registration of prospectus with the MAS
      • Pricing and allocation of shares/units
      • Admission of issuer the Official List of the SGX-ST and listing and quotation of shares/units

    Prospectus

    • Must contain all the information necessary for investors to make an informed assessment of the shares
    • Prepared by the issuer and its advisers
    • Criminal and civil liability for omissions and misleading statements

    Methods of IPO Marketing

    • Pre-IPO placements
    • Cornerstone investors
    • Roadshows
    • Advertising/other publicity

    Continuing obligations

    • Disclosure of material information
    • Periodic financial reporting
    • Interested person transactions
    • Corporate governance

    Equity Financing Overview

    • Issuing shares can be a good funding option when debt financing is insufficient, restricted or expensive
    • Common equity financing methods include private investment through subscription agreements (e.g. venture capital) and public offers of shares (e.g. IPO)

    Private Equity Financing

    • Common sources of private equity include friends and family fundraising rounds, angel investors, government schemes (e.g. Startup SG), Singapore accredited start-up incubators, and corporate venture capital investors
    • Applicable prospectus exemption methods for private equity financing include small offers, offers to no more than 50 persons, and offers to accredited and/or institutional investors
    • Additional considerations for private equity financing include limits on the number of shareholders and approval from existing shareholders

    Private Equity Financing Documents

    • A share subscription agreement sets out the terms and conditions of the subscription, often including warranties about the company's state
    • A shareholders' agreement sets out protective provisions for investors, often including corporate governance rights, anti-dilution mechanisms, transfer restrictions, and exit mechanisms

    Public Offer of Shares

    • The Singapore Exchange Securities Trading Limited (SGX-ST) has two boards: Mainboard and Catalist
    • The Mainboard has higher entry and listing requirements, including profitability or market capitalisation, while the Catalist board has no minimum quantitative entry criteria but involves assessment of suitability by approved sponsors

    IPO Key Steps

    • Prior to an IPO, restructuring may be necessary
    • The IPO process typically involves the following steps: conducting due diligence, drafting the prospectus, submitting a listing application to the SGX-ST, submitting the draft prospectus to the Monetary Authority of Singapore (MAS), reviewing and responding to queries from the SGX-ST and the MAS, negotiating legal documentation, registering the prospectus with the MAS, pricing and allocating shares/units, and admitting the issuer to the Official List of the SGX-ST

    IPO Prospectus

    • The prospectus must contain all information reasonably required by investors to make an informed assessment of the shares
    • The prospectus is prepared by the issuer and its advisors
    • There is criminal and civil liability for omissions and misleading statements in the prospectus

    IPO Marketing Methods

    • IPO marketing methods for public offers include pre-IPO placements, cornerstone investors, roadshows, and advertising/other publicity

    Public Company Continuing Obligations

    • Public companies have continuing obligations including disclosing material information, periodic financial reporting, managing interested person transactions, and adhering to corporate governance requirements
    • The video content covered in these notes is protected by copyright laws and can only be redistributed, reproduced or edited with explicit permission from the Singapore Institute of Legal Education.

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    Equity Financing PDF

    Description

    Explore the critical aspects of equity financing, including why companies issue shares and the common methods utilized for raising capital. This quiz covers private equity investments, applicable prospectus exemptions, and essential documents like subscription and shareholder agreements.

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