Prospectus liability : Board members' and the company's liability for damages in the event of errors or omissions in stock prospectuses and bond prospectuses

The public confidence in the securities market is essential for a well-functioning market. Erroneous or insufficient information in a prospectus risk adversely affecting the public confidence. Hence, special rules on prospectus liability have been introduced for, inter alia, board members. This thesis investigates the requirements for liability under the current regulation, and under what circumstances the company may be liable for erroneous or insufficient information in a share- or bond prospectus. The reasons for and against introducing a statutory prospectus liability for the company have been analyzed to investigate whether it is justified to introduce such a statutory provision. The Swedish Supreme Court has introduced a limitation of the subjects entitled to compensation. This limitation in the form of a requirement of actual justified trust to the erroneous information, causes several difficulties for investors who have suffered financial loss. The main opinion is that a company cannot be liable to pay damages to shareholders due to erroneous information in a share prospectus. This is due to the protection of the creditors and the share capital. However, there are fundamental differences between shares and bonds that result in these arguments not being applicable to prospectus liability regarding bonds. There are several reasons that speak both for and against introducing a statutory prospectus liability for the company. Mainly, however, it is a question of balance of interests between the share capital and a company´s creditors versus the protection of the investors who have suffered financial loss because of the erroneous information in the prospectus. After an overall assessment of the arguments, the arguments for introducing a statutory liability that also applies to the company, outweigh the arguments against