Legal Barrier To Fund-Raising For Private Firms Revealed

by Jason Gorringe, for LawAndTax-News.com, London

13 October 2005

According to a report in the Irish Independent, legislation introduced in the Republic in July 2004 in order to implement EU rules on prospectuses has had the unintended effect of making it illegal for private companies to raise equity.

Speaking to the Irish daily, David Beattie, commercial and coporate partner at O'Donnell Sweeney explained that under the terms of the new law, shares being issued are required to be made available to all members of the public. Although this provision was only intended to apply to PLCs, this was never stipulated, meaning that it can be read as applying to all companies.

Given that private companies cannot, by definition, offer shares to the public, this effectively makes it illegal for them to raise equity, Mr Beattie suggested, observing that:

"Under the legislation it is unlawful for private companies to offer their shares. It's a nonsensical position which cannot have been intended by the legislation. This sort of thing is unfortunate and inconvenient and does not help the confidence of outside investors looking to invest in Ireland."

The Department of Enterprise, meanwhile, responded by announcing that:

"We have received no specific concerns from any company, but if people do have concerns they should bring them to our attention."

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