Abstract
M.Comm.
At the time of a fresh issue of shares or debentures to the public, the principle document that provides potential
investors with information on which to base their investment decisions, is a prospectus. In terms of the
Companies Act, an offer of shares may not be made to the public unless it is accompanied by a prospectus. The
information to be disclosed in a prospectus must conform to the requirements of Schedule 3 of the Companies
Act. A prospectus also has to comply with the JSE Listing Requirements.
Schedule 3 was promulgated in 1975 and has not been amended since. The question arises whether the
requirements of Schedule 3 are comparable with similar international regulations and meet the needs of a
changing business environment in South Africa.
In an attempt to overcome this problem, ED 105 - Report offinancial information to be included in a prospectus
created the first accounting statement dealing with the financial information that should be included in a
prospectus, as well as proposing a revised Schedule 3 to the Standing Advisory Committee on Company Law
relating to non-financial information that should be disclosed in a prospectus.
Firstly this thesis aimed to establish whether the prospectus is a protection instrument for potential investors.
The prospectus must, therefore, provide potential investors with sufficient and reliable information to enable
them to make sound investment decisions. The contents of Schedule 3 were analysed in comparison with the
JSE Listing Requirements and ED 105 to determine whether progress has been made in the provision of quality
information to potential investors through the prospectus. The current South African requirements for
disclosure in the prospectus were also compared with the requirements of leading overseas bourses and the
prospectuses of recently listed companies. ED 105 improved the accuracy, completeness and relevancy of the
requirements contained in Schedule 3 and the JSE Listing Requirements. The comparison, however,
highlighted additional items of disclosure that can further contribute to the prospectus being a protection
instrument for potential investors.
In view of the financial literacy levels of the South African population, it was also necessary to investigate the
ability of potential investors, especially private investors, to understand, interpret and use the information
provided in a prospectus. The second objective was, therefore, to determine whether the prospectus empowers
potential investors. The prospectus will be an empowerment instrument if the information provided therein is of - such a nature that potential investors can understand and interpret the information for decision-making purposes.
An investigation into the literacy profile of potential investors, into relevant education provided to potential
investors and an assessment ofthe understandability of the contents of the prospectus was, therefore, performed.
Financial information required in ED 105 is strongly linked to the latest Statements of GAAP. A number of the
items are only lectured on CT A level and with the Harmonisation and Improvements Project it can be expected
that only individuals with a recent CTA will be able to understand these requirements. ED 105 impaired the
understandability of the prospectus by the average potential investor.