TAKING COUNSEL: Who exactly is an issuer of securities?

  • 2007-11-14
  • by Gintare Stalenyte [Jurevicius, Balciunas & Bartkus]
Lithuania's new Law on Securities was adopted in February 2007, implementing, inter alia, Directive No. 2003/71/EC of the European Parliament and the Council on what kind of prospectus should be published when offering securities to the public or for a listing in a trading system. It also introduces certain simplifications on disclosure requirements for public limited companies.
The Directive's principal objective is to ensure investors' rights and market efficiency mainly through disclosure requirements imposed on the issuers offering securities to the public. Prior to the Directive all public limited companies were considered to be issuers, and therefore all were obliged to comply with the requirements regarding disclosure, submission of required documents and information to the Lithuanian Securities Commission.

Adopting the new law mainly boiled down to amending the law to define an issuer of securities. The Law on Securities provides for a new definition of issuer, which states that only a public limited company, (i) the securities of which are allowed to be traded in the market, (ii) the prospectus of which was approved by the Lithuanian Securities Commission and the securities of which are offered to the public or admitted to trading in the market, or (iii) securities of which are offered to the public, is considered as the issuer of securities.
The new definition allows certain public limited companies not to be considered issuers. Such companies would include those that do not intend to offer their securities publicly or list them on the market; as a consequence, these companies are not obliged to comply with the disclosure requirements of the Lithuanian Securities Commission.

There are exceptions. For instance, a public limited company is not considered an issuer if it is offering shares to qualified investors (an offer addressed to fewer than 100 natural or legal persons per member state, and so on). The disclosure provided by a prospectus is not required due to the various categories of investors and their level of expertise, since in these cases it is clear that investors' rights would be protected even without disclosure of certain information on the issue of the securities.
However, one of the Directive's main novelties was the establishment of the common definition of "the offer of securities to the public," which raises some uncertainty in Lithuania's securities law. Under the Directive, "the offer of securities to the public" is understood as a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide whether to purchase or subscribe to these securities. Member states were obliged to implement and apply the said definition in their legal practices. Lithuania's Law on Securities implemented an identical, rather broad, definition of public offer of securities including different types and means of public offering of the securities.

According to the newly established definition, any form or means of offering such securities might be considered as "the offer of securities to the public." So even if the limited liability company does not intend to offer its securities publicly or list them, or even if the public limited company is not obliged to publish the prospectus according to the Directive and Lithuanian law, the public limited company might be considered an issuer. Such a company would be obliged to comply with the disclosure requirements. Thus, legal uncertainty remains with regard to defining the issuer of securities under Lithuanian law, and consequently the objective of the new Law on Securities to simplify disclosure requirements for certain public limited companies has not been fully achieved.

Gintare Stalenyte is an associate advocate at Jurevicius, Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Teder, Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.