GOING-PUBLIC COMPANIES

Dr. AbdelGadir Warsama Ghalib

GOING-PUBLIC COMPANIES

                                   

There is clear move  among sole enterprises, family companies or Gov. companies to go-public .This move is noticed and evidenced by advertisements that took place some time earlier including certain business entities. This move towards going public is, no doubt, a good step to be followed by others. In Saudi Arabia, it was declared that ARAMCO will go public. This makes a very important development in the area and hopefully it would lead to a successful fruitful result.

 

To go-public, one of the important duties to be undertaken by the founders of the new public company, is to prepare an IPO, M o U and the  A o A required for the new company. The public or potential investors, to a large extent, depend on the information available in such documents and accordingly decide whether to join forces or not.

 

The docs shall include, inter alia, the name of the new company, the place of work, duration of the company, objects of the company, names of all the directors and necessary personal information about them such as occupation, nationality and place of residence, capital for the company and the number of shares into which the capital is divided, the value of each share and other necessary information related to such shares such as price… etc. Also, among the info to be mentioned, should be the amount to be paid by directors regarding the incorporation of the company and an undertaking by all to finalize incorporation formalities within the permissible time.

 

All above info shall be expressly stated in the M o U and the A o A with particular emphasis on the objects of the company and the duties it is supposed to fulfill during its tenure, such as banking, insurance, general contracting, services. This info is necessary for transparency purposes required to give each investor full info regarding the company to be incorporated. This relevant info, no doubt, will help each potential investor to take the appropriate decision regarding participation in the company, if any?.

 

As mentioned above all info mentioned in these docs is essential and required by law. However, the most important part of the required info is that item dealing with the objects of the company. The objects of the company could be services, merchandise, tourism, industry or whatever… and in all cases the objects shall be stated very clearly in the docs so as to distinguish or identify the company to be established from other similar companies.

 

This clarity and transparency is basically required for licensing purposes. In some instances a license may be required from more than one government institution. For example, if the object of the company is banking or financial services, this activity shall be licensed, say by the concerned Ministry as well as the Central Bank.

        

The directors of the new company shall forward the M o U and the relevant A of A along with a comprehensive feasibility study to the departments in the concerned Ministry/institution. The technical personnel will review the documentation and the feasibility study and the appropriate decision shall be taken and the directors shall be informed accordingly. In some cases the competent authorities may reject the application to incorporate a new company for any reason. Legally speaking this administrative decision could be taken to the civil court after exhausting all possible appeals to the relevant executive bodies. The court, however, after hearing both parties and checking all necessary documents, shall take or issue the decision it deems appropriate. I mentioned this point to show that the directors could follow their legal rights before the executive body as well as the courts (Judiciary).

 

The directors (or founders of the new company), after obtaining the approval to go-ahead to establish the new company, are required to start the duty of  inviting the public at large for subscription through an IPO (Initial Public Offering). The invitation along with the prospectus shall be published in sufficient manner. The prospectus shall be exhaustive and informative, however, it normally includes a statement to show that the founders have paid their shares as declared by them, the maximum number of shares to be subscribed by each person or potential investor, number of shares required to qualify for board membership, dates, shares to be owned by nationals and foreigners, if any.

 

The directors / founders of the company shall sign the prospectus and, legally speaking, they are jointly responsible regarding the accuracy and all contents of the prospectus. However, before publishing the prospectus, the directors / founders shall forward to the competent authority, or official authorities, all documents to show that they have paid their subscribed shares.

 

The prospectus informs the public or potential investors about the names of certain banks that are identified to enable interested persons to subscribe. After closing the prospectus process, the equity shares of the company shall be allotted accordingly and on pro rata basis..

 

This explains the legal steps required to go-public, when existing legal entities are planning to do so...