{"id":11693,"date":"2020-01-03T07:32:34","date_gmt":"2020-01-03T07:32:34","guid":{"rendered":"https:\/\/securenow.in\/blog\/?p=11693"},"modified":"2021-01-21T13:11:38","modified_gmt":"2021-01-21T13:11:38","slug":"posi-public-offerings-of-securities-insurance","status":"publish","type":"post","link":"https:\/\/securenow.in\/insuropedia\/posi-public-offerings-of-securities-insurance\/","title":{"rendered":"POSI (Public Offerings of Securities Insurance)"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><p><span style=\"font-weight: 400;\">Many companies opt for the public fundraising route for financing their operations. While it is often seen as an easy or lucrative source of funds, it can also present the business with a lot of risks. The publication of a prospectus and the marketing activities (such as roadshows) during the book-building phase can give rise to several kinds of liabilities and pave the way for lawsuits against the company or its directors. These might be due to incorrect representation, omissions, incomplete information sharing or any other alleged or actual misstatement. For instance, overstatement of performance numbers such as revenue, inadequate information about risk factors or future prospects, etc may be cited.\u00a0<\/span><br \/>\n<span style=\"font-weight: 400;\">There are two major regulations concerning the issue of the prospectus, that companies need to adhere to:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Securities and Exchange Board of India (SEBI) regulations<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">SEBI (Disclosure and Investor Protection) Guidelines 2000<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">As per the Companies Act, organizations can be held liable for untrue or misleading statements or misstatements. The following sections are applicable:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Liability for misstatements \u2013 Section 62 (Civil liabilities) and Section 63 (Criminal Liabilities)<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In cases concerning the issue of securities or their transfer, SEBI is the final deciding authority and has adjudication powers for these provisions.<\/span><br \/>\n<span style=\"font-weight: 400;\">However, it is possible to shift the burden of these potential lawsuits with the help of a Public Offerings of Securities Insurance (POSI) policy.<\/span><\/p>\n<h3><b>Who should opt for POSI?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Any entity that wants to raise capital through a public offering or the publication of a prospectus can buy a POSI policy. It is beneficial for:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Initial Public Offerings (IPOs)<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Debt Offerings<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Secondary Offerings such as Rights Issue<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Private Placements<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Organizations can choose a coverage limit as per their requirements. The value of coverage sought depends on a host of factors such as IPO size, asset size, company\u2019s scale of operations, any special risks that need to be included, financial history or performance of the organization, etc.<\/span><\/p>\n<h3><b>What does the IPO insurance policy cover?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">POSI offers coverage for:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Securities issue or offer related claims<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Liabilities that arise during negotiations or discussions related to such offerings<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Punitive damages<\/span><\/li>\n<\/ul>\n<h3><b>Wouldn\u2019t a D&amp;O liability cover suffice?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Usually, the scope of D&amp;O contracts excludes public offerings. Even if the cover is extended by paying an additional premium, there are many benefits of having a stand-alone POSI cover to ring-fence IPO related risks specifically. These are:<\/span><\/p>\n<ul>\n<li><b>Broader Cover<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A POSI offers coverage to a broader set of beneficiaries \u2013 the organization, its directors, officers, and controlling\/selling shareholders as well as the offering underwriter. Some policies also offer global coverage.<\/span><\/p>\n<ul>\n<li><b>Extended Cover<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Unlike D&amp;O contracts that need to be renewed annually, POSI are multi-year policies. They can be customized to offer protection for up to a period of six years.<\/span><\/p>\n<ul>\n<li><b>Wider non IPO coverage\u00a0<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A separate IPO insurance ensures that the D&amp;O indemnity limit does not get depleted. It remains fully available for non-IPO related coverages.\u00a0<\/span><\/p>\n<ul>\n<li><b>Cost-efficient<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The insurance premium may be capitalized as a part of the process of fundraising. It can be claimed as an IPO expense as per the Income Tax Act.<\/span><\/p>\n<h3><b>Exclusions from the Public Offerings of Securities Insurance<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Each insurance provider may have its own set of exclusions. However, some of the common ones are:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Premeditated or deliberate infringement of regulations or law<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Prior claims or known issues<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Environmental damages including pollution<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bodily injuries or property damages sustained by a third party<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Uninsurable expenses<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Major shareholder exclusion<\/span><\/li>\n<\/ul>\n<h3><b>Final Words<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Prevention is always better than cure. POSI should be a pre-requisite for every organization planning to raise capital from the public. It can provide multiple benefits and successfully help to cover the large range of risks that many organizations face at this stage in their growth.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many companies opt for the public fundraising route for financing their operations. While it is often seen as an easy or lucrative source of funds, it can also present the business with a lot of risks. The publication of a prospectus and the marketing activities (such as roadshows) during the book-building phase can give rise [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":11694,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_lmt_disableupdate":"","_lmt_disable":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[909],"tags":[826,907,908],"class_list":["post-11693","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-specialized-risks","tag-public-liability","tag-liability","tag-public-offerings-of-securities-insurance"],"acf":[],"modified_by":"blog","_links":{"self":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/11693","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/comments?post=11693"}],"version-history":[{"count":1,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/11693\/revisions"}],"predecessor-version":[{"id":14069,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/posts\/11693\/revisions\/14069"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/media?parent=11693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/categories?post=11693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/securenow.in\/insuropedia\/wp-json\/wp\/v2\/tags?post=11693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}