Raswanti Nagaindren FOL MMU

1. FINANCING A COMPANY
- A company needs fund or capital to run its business.
- There are various ways. The most common way is to issue securities.
- Section 2 of the Capital Markets and Services Act 2007 defines securities as debentures ,
stocks or bonds issued or proposed to be issued by any government , shares in or debentures
of a body corporate or an unincorporated body or units in a unit trust scheme or prescribed
investments and includes any right, option or interest in respect thereof
PROMOTING PUBLIC FUNDING
- Public companies provided a medium for the pooling of public funds.
- The funds collected – provided companies involved in businesses that required high capital
investment , such as infrastructure building , with the necessary capital to conduct that
particular business venture.
- To provide incentives to the public , to invest in company securities and therefore provide
companies with the necessary capital to carry out their operations , the law has, among
other things , provided that
 Companies are separated legal persons distinct from their members. This concept
enables the risk associated to a business venture that is undertaken by a company
to be allocated to the company as opposed to its members who have invested money
in the company.
 Members of a company limited by shares enjoy the benefit of limited liability.
Limited liability promotes public funding of companies as it ensures , that the
creditors of the company will not have an access to the personal wealth of the
investor.
 Companies must disclose all material information in a written form relating to the
company securities that have been offered to the public. This is to enable a
prospective investor to make an informed decision as to his or her investment in
that company. The law requires the company that is seeking public funding to
provide its prospective investors with a prospectus.
 Company securities are transferable assets and therefore they can be bought and
sold
 Anti fraud provisions exist to deter fraud in respect of securities. Promotes a honest
market for securities and enhances confidence in the capital market.
- Company securities can be listed and traded on the stock exchange.
- Securities that are listed on the stock exchange are more marketable as pricing is attached
to those securities which allows them to be publically traded.
PROSPECTUS AND DISCLOSURE OF INFORMATION
- A prospectus is essentially a disclosure-based document.
- Investors will find key information that will enable them to make an informed decision as
to their proposed investment in company securities.
WHAT IS A PROSPECTUS?

2. - Purposes of the CMSA – includes any notice, circular, advertisement or document inviting
applications or offers to subscribe for or purchase securities or offering any securities for
subscription or purchase.
- Section 226 & section 242(1)
- Section 232 imposes two mandatory obligations on a company that is seeking public
funding. It stipulates that no person can issue , offer for subscription or purchase or in an
initial listing of securities, make an application for quotation on a stock market of a stock
exchange unless a prospectus has been registered with the SC – section 232(1).
- No person can issue , circulate or distribute any form of application for securities unless
the form is accompanied with a copy of a prospectus which has been registered with the
SC – section 232(2).
CONSEQUENCES OF CONTRAVENING SECTION 232.
- Offence punishable with a fine not exceeding RM10 million or imprisonment for a term
not exceeding ten years or both – section 232(7).
- Any person who suffers loss or damage by reason of, or by relying on , the conduct of
another person who has contravened any provision of Part 6 or any regulations made under
the CMSA can institute civil proceedings against that other person to claim compensation
for loss or damage suffered.
- Civil proceedings can be instituted against the other person although that other person has
not been charged with an offence in respect of the contravention or whether or not a
contravention has been proved in a prosecution – section 357.
- The CMSA also empowers the SC if it is in public interest to institute civil proceedings to
recover compensation on behalf of a person who suffers loss or damage by reason of, or
by relying on , the conduct of another person who has contravened any provision of Part 6
or any regulations made under the CMSA – section 358.
EXEMPTIONS
- The requirement that a registered prospectus must accompany any form of application for
securities is not applicable to excluded offers, invitations or issues of securities.
- Excluded offers or invitations refer to offers or invitations to subscribe for or purchase
securities that are made to any person who is specified under Schedule 6 of the CMSA.
- Excluded issue – Schedule 7 of CMSA
- Minister of Finance makes a prescription pursuant to section 229 or section 230 CMSA.
REFUSAL TO REGISTER
- SC is not under a duty to register a prospectus and can refuse to register a prospectus in
situations outlines in section 233(1). These include when the prospectus doesn’t comply
with any requirements or provisions of the CMSA – Section 233(1)(a).
- The prospectus contains a statement of information that is misleading or false – section
233(1) (c) or
- The issuer of a prospectus has contravened securities law or the Act and that contravention
casts doubt on the fitness of the issuer to have access to public funding – section 233(1)
(f).
- Part 3 of the Prospectus Guidelines also states that the SC reserves the right to refuse
registration and to return the prospectus if in its opinion ; the disclosure in the prospectus

3. is incomplete and inadequate , the prospectus is not in its final/complete form and the
prospectus is not accompanied by all relevant materials/documents.
PROSPECTUS EXPOSURE
- Before registering the prospectus under section 233, the SC will publish the prospectus on
its website for public information.
- Section 232(4) – The public may view and provide comments in respect of the information
disclosed in the prospectus.
- Section 232 (5) – The CMSA also provides that this publication by the SC shall not be
taken as indicating that the SC recommends the securities or assumes responsibility for the
correctness of any statements made or opinions or reports expressed in the prospectus.
CONSEQUENCES OF REGISTRATION
- The CMSA provides that registration of a prospectus with the SC doesn’t mean that the SC
has recommended the securities for which a prospectus has been registered or the SC has
assumed responsibility for the correctness of any statements made or opinions or reports
expressed in the prospectus – section 235 (1) (b) (iii).
POST REGISTRATION
- The issuer is required to lodge a copy of the registered prospectus and a copy of the form
of application accompanying the registered prospectus with the Registrar.
- Section 234 – This requirement doesn’t apply to registered prospectuses in respect of unit
trust schemes.
- The issuer of the prospectus shall cause a copy of any consent required under section 244(1)
within 3 days after its registration and every material contract or document referred to in
the prospectus to be deposited at the registered office of the issuer in Malaysia , and if it
has no registered office in Malaysia , at the address specified in the prospectus for that
purpose.
- These documents must be kept there for a period as may be specified by the SC , for
inspection by any person without charge – section 233(3).
- Prospectus Guidelines – The documents including other documents such as the audited
financial statements of the corporation and all reports, letters or other documents ,
valuations and statements made by any expert , any part of which is extracted or referred
to in the prospectus must be kept at a specified place in Malaysia for a period of at least 12
months from the date of the issue of the prospectus.
CONTENTS OF PROSPECTUSES
- To ensure that the prospectus assists the prospective investor in making an informed
decision concerning his or her investment , the CMSA has empowered the SC to regulate
the contents of a prospectus.
- Contents in a prospectus are regulated to ensure that :-
a) All information necessary to enable the prospective investor to make an assessment of
the securities offered by the prospectus.
b) The inclusion of false or misleading information or omission of material information
from the prospectus is prohibited. The information disclosed in the prospectus must be

4. true and complete. Hence , due diligence must be exercised by those who are involved
in the preparation of the contents.
- Ensuring that the prospectus includes material information – This will assist the
prospective investor in making an informed decision as to whether to invest in the
company’s securities or not. To ensure that the prospectus includes all material information
, the CMSA imposes a general duty of disclosure on persons who are involved in the
preparation of prospectuses (section 236). The contents of a prospectus must also include
information that is specified under section 235 and the Prospectus Guidelines.
GENERAL DUTY OF DISCLOSURE.
- Set out in section 236.
- Implements what is known as the “reasonable investor standard of disclosure” in the
preparation of the contents of a prospectus.
- Those responsible for preparing the contents of the prospectus are given the freedom to
determine what information they wish to be included in a prospectus.
- The information included in the prospectus must be information that the reasonable
investor or his or her professional advisor “would reasonably require and reasonably
expect” to find in prospectus so as to enable the investor to make an informed assessment
as to the :
a) Assets and liabilities , financial position , profits and losses and prospects of the issuer.
b) Rights attaching to the securities.
c) Merits of investing in the securities and the extent of the risk involved in doing so :-
Section 236(1).
- The CMSA provides that regard must be given to the nature of the securities , the nature
of the business of the issuer of the securities , the person likely to consider acquiring such
securities , the fact that certain matters may reasonably be expected to be known to a
professional adviser and whether the prospective investors are holders of securities in the
corporation and if they are , to what extent have relevant information been disclosed to
them under any law or any requirement of the rules of a stock exchange – Section 236(3).
- Exeter Group Ltd v ASC (1998) 16 ACLC 1382
The company’s prospectus merely stated that the company’s strategy was to negotiate an
investment with an appropriate target. The prospectus did not contain anything more than
a profile of the directors who were given extensive authority to make investment decisions.
The court held that the prospectus issued didn’t comply with the standard set out in the
Australian equivalent of section 236.
It is prudent that information included in a prospectus comes together with an appropriate
caution when necessary. For example , when information in the prospectus relates to a
matter of speculation such as the inclusion of a forecast profit in a prospectus , it would be
prudent to include the appropriate warnings and underlying assumptions in respect to that
forecast otherwise the issuer may contravene the “reasonable investor” standard of
disclosure.
SPECIFIC DISCLOSURES
- The prospectus must also include information that is specified under s235 and in the
Prospectus Guidelines.
- A prospectus must include :-

5. a) A date and unless proven otherwise , the date mentioned on a prospectus shall be the
date of issue of the prospectus.
b) A statement to the effect that the prospectus has been registered with the SC and a
disclaimer to the effect that registration doesn’t imply that the SC had recommended
the securities nor has the SCassumed responsibility for the correctness of any statement
made or opinion or reports expressed in a prospectus.
c) A statement to the effect that no securities will be allotted or issued on the basis of the
prospectus later than such period specified by the SC : Section 235(1).
EXPERTS
- Where the prospectus contains a copy of or an extract from a report , memorandum or
valuation prepared by an expert , the prospectus must include the date of the report ,
memorandum or valuation was made and a statement indicating whether that report ,
memorandum or valuation was made for the purposes of incorporation in the prospectus
–section 235(1).
- The prospectus must also set out such information , matters or reports as may be specified
by the SC :- section 235(1)(f).
- Attention must be given to the Prospectus Guidelines. A prospectus cannot name a person
as having made a statement that is included in a prospectus unless that person has consented
to its inclusion as part of the contents of the prospectus and has not withdrawn his/her
consent to that inclusion – section 235(1) ( e ) and section 244.
- If a statement is included in a prospectus without that consent or that person has withdrawn
his or her consent for the statement to be included in prospectus , that person will not be
subject to any criminal or civil liability by reason of the fact that the prospectus includes
false or misleading statements – section 254(1)(B).
CONSEQUENCES OF BREACH OF SECTIONS 235 and 236.
- Failure to comply with s 235 and 236 CMSA may result in:
(a) SC refusing to register the prospectus: s 233(1) CMSA
(b) SC issuing a stop order to the issuer directing the issuer or any other person not to allot,
issue, offer, make an invitation to subscribe for or purchase or sell, further securities: s
245(1) CMSA.
- Consequences of issuing a stop order
(i) where the securities have not been issued to the applicants: s 245(7)(a) CMSA
(ii) where securities have been issued to the applicant: s 245(7)(b) CMSA
- Once the securities are listed on a stock market of a stock exchange and trading has
commenced, the stop order cannot be issued: s 245(8) CMSA.
- Non-compliance with the stop order issued by the SCis an offence against CMSA : s 245(9)
CMSA.
(c) Issuer and any other persons responsible for causing the prospectus to contravene s 235
and 236 CMSA incurring criminal and civil liabilities out of a statement or information
that is false or misleading in a prospectus.
DEFENCES TO LIABILITY
- Persons liable under s 246 and s 248 CMSA for defective prospectuses that contain

6. false or misleading statements, or in which material omission occurs, may avoid liability if
they can establish one or more of the defences set out in s 250, 251, 253 and 254 CMSA.
- s 250 CMSA: Due diligence defence.
- s 251 CMSA: Reliance on statement and information in respect of false or
misleading statement.
- s 253 CMSA: Reliance on public official statement in respect of false and
misleading statement.
- s 254 CMSA: Defence of withdrawal of consent
- Persons liable under s 249 CMSA for misleading or defective acts, may avoid
liability if they can establish the defence set out in s 252 CMSA.
- s 252 CMSA: Reliance on statement and information in respect of misleading or
deceptive act.