To issue retail bonds the following rules apply:
Offer Document or Prospectus - what's the difference?
A financial promotion involving the marketing of bonds to the public requires the production of an offer document containing information as to the purposes of the funding and potential risks etc for the investor. A prospectus is a particular type of offer document containing statutory declarations and detailed information for the investors' protection laid out according to statutory provisions. It is a costly document prepared by a regulated financial advisor, who is authorised to prepare such documents for the financial promotion of transferable security instruments such as bonds.
There are two ways of avoiding the expense of having to pay a financial advisor to prepare a prospectus:
1) A prospectus is not required to be produced if the bonds are to be issued on a non-transferable basis - in that case a simple offer document is all that is required and it is usually headed "This is not a Prospectus". Bond holders in this case are not permitted to transfer their bonds to others but must hold them until maturity (or until the bond holder dies in which case the bond can be transferred to the estate of the deceased).
2) It is also not necessary to prepare a prospectus if the offer of bonds (whether transferable or not) is restricted to a specific class of investor rather than the general public - the so-called "sophisticated" and/or "high-net worth" individual. A simple offer document will also suffice in that case.
How can one sell bonds to the general public and make them transferable at the same time and avoid having to prepare a prospectus?
The answer is to issue bonds up to a maximum value of 5 million Euros. In that case the bonds can be issued on a transferable basis. If one wants to raise more money by issuing transferable bonds then according to EU legislation, a company is obliged to wait 12 months before making a subsequent issue of say another 5 million Euros.
An offer document has to be approved by a financial advisor, but it is not as expensive or onerous to produce as a prospectus which generally has to be prepared if one is attempting to promote transferable bonds to the general public.