Q&As

Would a communication to existing shareholders of a private company limited by shares (of which there are 500+) asking them to pass a resolution to disapply rights of pre-emption so that shares in the capital of the company can be issued to a new investor constitute ‘investment activity’ for the purposes of Financial Services and Markets Act 2000 and the Financial Promotions regime?

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Produced in partnership with Russell Kelsall LLB (Hull); LPC (Shef) of TLT
Published on LexisPSL on 20/11/2019

The following Financial Services Q&A produced in partnership with Russell Kelsall LLB (Hull); LPC (Shef) of TLT provides comprehensive and up to date legal information covering:

  • Would a communication to existing shareholders of a private company limited by shares (of which there are 500+) asking them to pass a resolution to disapply rights of pre-emption so that shares in the capital of the company can be issued to a new investor constitute ‘investment activity’ for the purposes of Financial Services and Markets Act 2000 and the Financial Promotions regime?
  • Is it a regulated activity for the purposes of the Financial Services and Markets Act 2000?
  • What is the Financial Promotions regime?
  • What issues should the company consider?
  • When is a communication made ‘in the course of business’?
  • What is an invitation or inducement to engage in ‘investment activity’?
  • Entering or offering to enter into an agreement which constitutes a 'controlled activity'
  • Exercising any rights conferred by a ‘controlled investment’ to acquire, dispose of, underwrite or convert a controlled investment
  • Does an exemption apply?

Is it a regulated activity for the purposes of the Financial Services and Markets Act 2000?

The activity of ‘advising on investments’ is set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO 2001), SI 2001/544, art 53(1). It includes advice on exercising, or not exercising, any right conferred by investments (including pre-emption rights) to buy, sell, subscribe for, exchange or redeem other investments. For more information about the activity of advising on investments, see Practice Note: Advising on basic stakeholder products, investments, pension transfers and loan-based crowdfunding agreements.

Advice will only fall within RAO 2001, SI 2001/544, art 53(1) if it is carried on ‘by way of business’. A company that provides investment advice will not be considered as doing so unless they ‘carry on the business of engaging in’ investment advice. Further guidance is set out in the Financial Conduct Authority’s Perimeter Guidance Manual (PERG) at PERG 2.3.2(2)G and Practice Note: What does ‘by way of business’ mean?.

So long as the company's communication to its shareholder asking them to disapply pre-emption rights is not part of that company's business, it is unlikely to be a regulated activity.

What is the Financial Promotions

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