Commentary Part 20: Private and Public Companies Chapter 1: Prohibition of Public Offers by Private Companies Section 755: Prohibition of public offers by private company
1049.Subsection (1) of this section continues the prohibition in section 81(1) of the 1985 Act on private companies offering their shares or debentures to the public, though the consequences of breaching the prohibition are changed. The prohibition applies only to private companies limited by shares or limited by guarantee and having a share capital. The prohibition does not apply to unlimited companies or to companies limited by guarantee and not having a share capital.
1050.Private companies are also prohibited from allotting their shares or debentures with the intention that they are offered to the public by someone else. Subsection (2) creates a presumption as to when shares or debentures have been allotted in this way. Similar provision was made in section 58(3) of the 1985 Act which this subsection replaces.
1051.A private company will no longer commit an offence if it offers its securities to the public. Instead, if a private company does breach the prohibition it will be compelled to re-register as a public company, unless it appears to the court that the company does not meet the requirements for re-registration and that it is impractical or undesirable to require it to take steps to do so, in which case the court may make a remedial order and/or an order for the compulsory winding up of the company.
1052.Subsection (3) contains an exemption to the prohibition on public offers. Where a private company intends to become a public company it will be able to make an offer before it has completed the formalities of re-registration as a public company. Acts done in good faith before allotment in anticipation of re-registration will not be treated as breaching the prohibition on offers to the public, even if the re-registration arrangements do not ultimately succeed. The exemption also applies if, as part of the terms of the offer, the company undertakes to re-register as a public company and then complies with that undertaking not later than 6 months after the day on which the offer is first made to the public.