Dr. AbdelGadir Warsama Ghalib

With reference to the features and main characteristics of Public Joint Stock Companies, I would like to highlight in this article, an important feature related to this type of companies which is the prospectus required to call the public at large, for subscription to acquire some of the shares in the company.

To achieve the process of subscription and through it, the founders of the public joint stock company take the initiative to call and invite the public-at-large to join forces for the purpose of having a joint venture by establishing a new public joint stock company available for potential investors looking for such new opportunities.

The details of invitation to the public, to join forces, shall be shown and clearly expressed in a certain legal document known as the prospectus. Eligibility for subscription and other conditions are, normally, decided by the founders of the company, who shall act according to the provisions of the Commercial Companies Law.

The prospectus shall be published in at least two local newspapers and shall contain and reflect all required information to the new subscribers who will act, in good faith, according to what has been reflected in the prospectus.

Legally speaking, the founders are jointly responsible for all information mentioned in the prospectus.

Based on that, each subscriber shall provide all necessary information about himself and the number of shares he intends to acquire. The subscription shall be unconditional otherwise, legally speaking; it should be discarded and becomes of no value.

The subscriber shall clearly indicate that he has read and seen the Articles of Association and the Memorandum of Understanding of the company and he agrees to what they include.

In addition to the contents mentioned in the prospectus, the subscriber will have the legal right at any time to peruse and study the Memorandum of Understanding and the Articles of Association of the company.

After deducting the shares acquired by the founders of the company, the other or balance shares shall be offered to the public for subscription. The Founders, according to the Commercial Companies Law, shall acquire certain number of shares for themselves which shall not exceed certain percentage of the shares of the company under establishment. This to achieve the rationale behind public companies..

The offer to the public regarding the balance shares shall remain valid and open for not less than 30 days and, by all means, not to exceed 90 days. I believe that this period is more than enough to enable any interested person to come forward to subscribe. In fact there are many new companies, which has been totally subscribed or over-subscribed in few days.

The company, in all cases, shall not be incorporated unless all offered shares are properly taken and subscribed by potential investors. In case all shares are not subscribed, for any reason, the above period could be extended for three more months after obtaining the approval of the competent authorities. 

As a matter of fact, in some cases, in practice there are a lot of problems that could arise regarding subscription of shares. One of such practical problems is the expiry of the subscription period before having enough subscribers to take all shares. This is normally known as under-subscription instance. 

Ironically, in some cases, the opposite could happen wherein the number of subscribers exceeds the number of available shares i.e. over-subscription. This normally happens when potential investors are aware and ready to join a new company that meets their expectation.

There are certain steps to be undertaken in cases of under-subscription or over-subscription ?

If the subscription period expires before having enough subscribers, particularly in case of under-subscription, the founders of the company may either rescind the incorporation of the company, or reduce the capital of the company (this is subject to the approval of the competent authorities), or the founders will subscribe the balance shares after obtaining the approval of the competent authorities.

Whereas, in case of over-subscription there are two possible alternatives, that is to say, the shares must be proportionately distributed to the subscribers. Each subscriber will be given new shares proportionate to his shareholding. The allocation shall be to the nearest complete share provided that all shareholders shall participate in the company irrespective of the number of shares originally subscribed by them.

The concerned Ministry may, upon a proposal from the founders and approval of the competent authorities, decide to allocate to all shareholders an initial number of shares not exceeding a certain amount (to be agreed upon) and, thereafter, the balance to be distributed according to what has been explained  above.

Under-subscription or over-subscription basically depends on the objectives of the company to be incorporated. In case there is a good opportunity for the new company to prosper and flourish, the investors will immediately take all shares offered for subscription and even look for more in a way that ultimately, at the end, leads to over-subscription.

Also the reputation of the founders and their goodwill will have impact on over-subscription of shares. Needless to say in the absence of what is mentioned above the outcome, of course, will be under-subscription of shares.

To open the door to start a good reputable company that attracts many interested potential investors, the founders shall study all possibilities that would enable the process of subscription of the new company to finish smoothly within the required permissible time. Of course, the general good atmosphere of investment in the country would play a great role in establishing new successful companies.