<p>Recent years have seen a significant increase in the issue of securities in  Jordan; particularly in the bond market, as there seems to be a growing need for  such investment instruments due to the rising costs of borrowing. This article  provides an overview of the legal requirements for the issue and offering of  securities in Jordan. <br /><br /><strong>The basic rule for the issuance of  securities </strong><br />Every issuer in Jordan shall submit to the Securities  Commission an application for registering securities. The Securities Commission  has the right to reject the registration and issue of any securities if such  issue risks causing damage to the owners of the securities of that issuer or to  the investors in general. <br /><br /><strong>The “Issuer”</strong><br />According to  the Securities Law No. 76 of 2002 (the “Securities Law”), any legal person  issuing or announcing the intention to issue securities is considered as an  “Issuer”. <br /><br /><strong>Securities under the Securities Law </strong><br />The  Securities Law defines securities broadly, as any ownership rights or any  instruments local or foreign that are commonly recognized as securities and  considered as such by the Board of Commissioners of the Securities Commission.  The Securities Law includes the following, in particular, under the definition  of securities: <br /><br />1. Transferable and tradable company shares;</p>
<p>2. Bonds issued by companies;</p>
<p>3. Securities issued by the Government, official public institutions, public  institutions, or municipalities;</p>
<p>4. Securities depository receipts;</p>
<p>5. Shares and investment units of mutual funds;</p>
<p>6. Equity option bonds;</p>
<p>7. Spot contracts and forward contracts; and</p>
<p>8. Put and call option contracts.</p>
<p><strong>What is the procedure to offer securities?  </strong><br />The  procedure will depend on whether the issuer wishes to offer to sell securities,  after registering them at the Securities Commission, through a public or a  private offer. The following will touch upon the definition and legal  requirements of both types of offering securities:   <br /> <br /><strong>1. Public  Offer</strong><br />The public offer is the offer to sell securities to more than  thirty persons. <br />Legal requirements for a public offer:<br /><br />The Securities  Law provides that no person shall make a public offer unless a prospectus is  filed with the Securities Commission, together with all the information and data  which enables investors to make their investment decision. An announcement  approved by the Securities Commission of the prospectus shall be made public  through two local daily newspapers. <br /><br />The prospectus must be prepared by a  licensed underwriter and, for disclosure purposes, shall include copies of the  following:</p>
<p>1. Any agreement or agreements concluded with the underwriter;</p>
<p>2. A legal opinion in respect to the legality of the issue;</p>
<p>3. The issuer’s Memorandum of Association if the issuer is a public  shareholding company or a private shareholding company, and a copy of its  articles of association and any other documents relevant to the company;</p>
<p>4. If the issuer is a limited liability company, the documents pursuant to  which the company was established or declared;</p>
<p>5. If the Issuer is a partnership or any other form of organization, the  articles of partnership or association and any other papers pertaining to its  organization, and a copy of the underlying agreements or indentures affecting  any stock, bonds, or debentures offered or to be offered;</p>
<p>6. All contracts that contain substantial facts; and</p>
<p>7. The agreements concluded between the issuer, the payment agent, and the  custodian of the securities subject to the offer.</p>
<p>The prospectus is deemed to be effective thirty days after its submission to  the Securities Commission.</p>
<p><strong>Exceptions:</strong><br />It is worth mentioning that the Securities  Commission may grant exemptions from submitting a prospectus in any of the  following cases:</p>
<p>a) If the number of investors, to which the public offer is made, is limited,  and the investors are capable of assessing and bearing the investment risks  (sophisticated investors); or</p>
<p>b) If the funds intended to be raised by the offer are limited; or</p>
<p>c) If the disclosure submitted to the investors is accurate and sufficient to  be considered as a substitute for the prospectus.</p>
<p><strong>2. Private Offer </strong><br />The private offer is the offer to sell  securities to thirty persons or less.</p>
<p>Legal requirements for a private offer: The Securities Law does not require  issuers offering securities through a private offer to submit a prospectus,  however the relevant directives provide that the issuer must submit all the  documents relating to the issue of securities including the required approvals  and decisions; therefore, in practice underwriters prepare an information  memorandum, that serves as a prospectus; disclosing to the investors all needed  information that would help making their decision.<br /><br />The relevant  directives also provide that an issuer offering securities through a private  offer must announce such offer in two local daily newspapers at least twice, and  include the data and information relating to the issue, the value of the issue  and the parties to whom the offer is made. <br /><br /><strong>Penalties for  violating the Securities Law</strong><br />Offering to sell securities upon false  or misleading information is a violation of the Securities Law. Penalties for  violating The Securities Law range from a fine not exceeding one hundred  thousand (100,000) Jordanian Dinars, in addition to a fine of not less than  twice the amount, and not more than five times the amount, of profit made or  loss avoided by the person committing the violation. Certain violations may also  result in imprisonment for a term not exceeding three years.  The penalties also  include the right of any investor who incurs financial loss as a result of the  violation to claim remedies for damages from the seller or the issuer violating  the Securities Law.</p>