Anyone offering securities to the public needs to comply with a range of financial markets legislation. In particular they will need to comply with the:
- Securities Act 1978 and the Securities Regulations 2009
- Securities Markets Act 1988
- Financial Reporting Act 1993.
Who needs to comply, and the extent of that person's legal obligations, depends on the nature of the offer, and the scope of the relevant piece of financial markets legislation.
The information below describes:
- what is, for the purposes of the Securities Act, an 'offer of securities to the public'
- who has legal obligations when securities are offered to the public.
What is an offer?
An offer includes an invitation and any proposal to make an offer. It can also include the distribution of offering documents (such as an investment statement or prospectus).
It need not be a formal offer in any contractual sense. There need not be any advertising or public notification, and an offer can occur simply by a person creating securities, and then letting it be known those securities are for sale.
What is a security?
A security is an interest or right to participate in any capital, assets, earnings, royalties or other property.
Common types of securities include equity securities (shares in a company) and debt securities (e.g. deposits or bonds).
Other types of securities include:
- units in unit trusts
- interests in superannuation schemes
- life insurance policies.
See more about superannuation schemes.
Who is the public?
The Securities Act 1978 and its regulations are primarily concerned with offers of securities to 'the public'. These are often referred to as 'retail offers'. If an offer is not made to the public, it does not need to comply with the Act or its regulations (but it will need to comply with other financial markets legislation).
Even if only one person who is offered securities is a member of the public the whole offer will nevertheless be considered an offer to the public, and so will need to comply with the Act and its regulations.
When is an offer of securities to 'the public'?
An offer of securities to the public includes an offer to:
- any section of the public
- individual members of the public randomly selected
- persons known to those making the offer as a result of an advertisement.
An offer can still be to the public if it is aimed at a target group of people, and not the public in general, and even if those persons are selected for certain reasons (for example, employees of the person issuing or promoting the securities).
When is an offer of securities not to 'the public'?
An offer will not be made to the public if the only persons securities are offered to are:
- relatives or close business associates of the issuer or of a director of the issuer;
- recognised professional investors
- persons required to pay (or previously required to pay) a minimum subscription of $500,000
- any other person who has not been selected as a member of the public; or
- a person invited to enter into an agreement to underwrite or sub-underwrite the offer of securities.
Offer to 'eligible persons'
Most provisions of the Act relating to offers of securities do
not apply if the only persons who are eligible to invest, and do
invest, are wealthy, experienced in investing and/or
experienced in the business or industry to which the offered
securities relate. However, the issuer must have followed the
process in the Securities Act for verifying the wealth or
experience of the investors.
Find out who is an 'eligible person'.
Who has legal obligations when securities are offered to the public?
Issuers and promoters under the Securities Act 1978 and the Securities Regulations 2009
The persons with obligations under the Securities Act and Regulations are, primarily, issuers and promoters.
Who is an issuer?
- For equity or debt securities, the issuer is the person on whose behalf money paid for the securities is received
- For participatory securities or units in a unit trust, the issuer is the manager of the scheme or trust
- For an interest in a contributory mortgage, the issuer is the contributory mortgage broker
- For a life insurance policy, the issuer is the life insurance company liable under the policy
- For a superannuation scheme, the issuer is the superannuation trustee of the scheme.
Who is a promoter?
A promoter is a person who is instrumental in forming a plan under which securities are offered to the public. Where a promoter is a company, the directors of that company will also be promoters.
Directors of issuers are not promoters, and nor are persons who are acting solely in their professional capacity, such as legal or financial advisers.
Issuers under the Securities Markets Act 1988
Under the Securities Markets Act, 'public issuers' also have obligations. A 'public issuer' is an entity that is party to a listing agreement with a registered exchange. Currently, the only registered exchange in New Zealand is NZX Ltd.
Entities enter into listing agreements when they want to have their securities traded on an exchange.
Issuers under the Financial Reporting Act 1993
Issuers also have financial reporting obligations under the Financial Reporting Act, and are required to prepare and register audited financial statements each year.
Find out more about issuer's financial reporting obligations from the Companies Office website.