Liability for Omission in Prospectus under the Companies Act of 2007: Need for Reformation

Abstract

Prospectus is a legally mandated document which reflects the status of a company which has offered securities to the public. Based on the information provided in the prospectus, the investors make their decisions as to whether or not accept the offer and purchase securities of that enterprise. As a result of this vital role played by prospectuses in inducing investors to invest in securities, it is of immense importance that the prospectus not only provide accurate information, but also do not omit any fact which is essential to make a proper decision. However, under the company law of Sri Lanka, although the liability for misstatements could be imposed on persons who are responsible for making the prospectus, there cannot be found any provisions which provide for liability for omissions. Nonetheless, with reference to other legal systems in the world such as India, the United Kingdom (UK), and the United States (USA), it can be seen that provisions relating to liability for misstatements as well as for omissions are included in their relevant legislations. Hence this can be identified as a loophole in Sri Lankan company law regime owing to which a subscriber who has suffered a loss as a result of any omission lacks an effective legal remedy to claim compensation from the party who is responsible for such an omission. Therefore, this study recommends that the existing company law of Sri Lanka should be amended in order to include provisions relating to liability for omissions as well. The author uses primary and secondary data such as Acts and Statutes, judicial decisions, and web articles to achieve the objectives of analysing the company law regime of Sri Lanka in relation to the liability for omissions in prospectuses with a comparative analysis of other jurisdictions; India, the UK and the USA.