Inviting the public to subscribe in violation of the law is an offence that directly affects investor protection and the integrity of the capital market. An open invitation to the public to subscribe for shares or financial instruments requires compliance with the issuer’s permissible legal form, approval of offering and disclosure documents by the Financial Regulatory Authority, and observance of the distinction between public subscription, public offering and private placement. Liability does not depend merely on describing the transaction as a “funding round” or “partnership”; it depends on the substance of the offer, the target audience, the nature of the security or financial right, and the method used to collect funds.

I. What Is an Invitation to Public Subscription?

It is an offer directed to a body of investors to subscribe for securities or financial instruments issued by a particular entity, without restricting the offer to a specific private circle in accordance with the regulatory requirements for private placements. The legal characterisation depends on the substance of the method and the audience, not the label chosen by those conducting the transaction.

The invitation may be made through newspapers, websites, social media, advertising campaigns or digital platforms. The mere use of electronic communication does not automatically make the transaction a public subscription; the decisive factors are the degree of generality, the number and characteristics of the addressees, and the regulatory requirements applicable to the type of offering.

II. Article 4 of Capital Market Law No. 95 of 1992

Article 4 of the Capital Market Law provides that no Egyptian or foreign legal person, regardless of its nature or the legal system governing it, may offer securities or financial instruments to the public by way of public subscription except on the basis of a subscription prospectus approved by the Financial Regulatory Authority, using the forms prescribed by the Authority and in accordance with the conditions and procedures set out in the Implementing Regulations.

The law also authorises the FRA Board of Directors to prescribe the requirements applicable to public subscription, public offerings and private placements depending on the type of security or financial instrument. The issue therefore cannot be reduced to obtaining a single “licence”; the full regulatory structure of the transaction must be identified.

III. The Difference Between Public Subscription, Public Offering and Private Placement

Public subscription differs from a public offering and a private placement in the nature of the transaction, the target investors and the regulatory documentation required. The FRA establishes specific requirements for each route, and the required document may be a subscription prospectus, an offering prospectus or an information memorandum, depending on the circumstances.

A common practical error is to treat a private placement as an absolute exemption from regulatory oversight. Private placements are themselves subject to requirements concerning eligible investors, disclosure, marketing methods and the type of security. If the transaction falls outside those parameters, the regulator may recharacterise it according to its substance.

IV. Is Public Subscription Limited to Joint-Stock Companies?

For shares representing capital capable of being publicly offered, the company’s legal form and the nature of the security are decisive. A limited liability company may not invite the public to subscribe for securities for its account; Companies Law No. 159 of 1981 expressly criminalises such conduct under Article 162(4).

Joint-stock companies and partnerships limited by shares that issue securities to the public are subject to the Capital Market Law and its Implementing Regulations, in addition to the Companies Law where no special provision applies. The regulatory framework governing bond issues by such companies likewise reflects this combined legal structure.

V. Specific Criminal Liability of Limited Liability Companies

Article 162(4) of the Companies Law criminalises the conduct of any founder, manager or other person who invites the public to subscribe for securities of any kind for the account of a limited liability company, as well as any person who offers such securities for subscription on behalf of the company.

Liability is therefore personal and requires identification of the person who made or participated in the invitation or offering. It is not automatically attributed to all partners or managers merely because they form part of the company’s structure.

VI. Law No. 146 of 1988 on Receiving Public Funds Is Not a Substitute for the Capital Market Law

Law No. 146 of 1988 regulates companies engaged in receiving public funds for investment and prohibits entities that do not satisfy its requirements from receiving money from the public for deployment, investment or participation, and from inviting the public to provide funds for that purpose.

This activity differs from the issuance of shares under the Capital Market Law, although the facts may overlap in some cases. It is therefore necessary to distinguish between unlawfully offering securities without satisfying the applicable requirements and unlawfully receiving public funds for investment without a legal basis.

VII. The Meaning of the “Public” in Offences Involving the Receipt of Funds

In applying Law No. 146 of 1988, the Court of Cassation has treated the public as an undefined group of persons lacking a special relationship with the person receiving the funds, as distinct from specific private agreements among identified persons connected by particular relationships.

This distinction is important when assessing online funding campaigns or open invitations over the internet. It should not, however, be transferred mechanically to every other statutory provision without examining its wording and regulatory purpose.

VIII. The Effect of Social Media and Digital Platforms

Public advertisements on social media may constitute strong evidence of an invitation directed to an undefined audience, particularly where they contain an open investment offer, statements concerning returns or ownership percentages, and instructions for transferring funds. The FRA has also recently indicated that it monitors invitations to subscribe for shares without the required approvals, together with unlawful receipt of funds for investment.

The use of a digital platform alone does not determine the legal characterisation. It remains necessary to examine whether the transaction involves an issuance of securities, regulated crowdfunding, receipt of funds for investment, or merely a private offer.

IX. Subscription Prospectus and Disclosure Requirements

A subscription prospectus must contain the information required by the Capital Market Law, including the company’s objects, capital, securities offered, founders, proposed use of subscription proceeds, and historical and financial information for subsequent issues.

The purpose of the prospectus is not merely to satisfy an administrative formality but to enable investors to make informed decisions based on sufficient and accurate information. False statements or omission of material facts may therefore give rise to liability separate from the breach of offering rules themselves.

X. Must the Prospectus Always Be Published in Two Newspapers?

The former version of Article 4 required publication of the subscription prospectus in two widely circulated Egyptian daily newspapers, at least one of them in Arabic. The 2018 amendment changed this approach by leaving the publication methods to FRA Board decisions.

Accordingly, insisting on the two-newspaper rule as the current requirement in all cases is inaccurate. The FRA rules in force at the time of the offering and the type of security must be reviewed.

XI. Receiving Subscription Monies and Bank Accounts

Mechanisms for receiving subscription monies, allocating securities and refunding amounts are governed by the law, Implementing Regulations and the type of issuance. It is inaccurate to describe all accounts as “frozen” until registration of the capital increase, because the details vary according to whether the transaction concerns incorporation, a capital increase or a particular type of instrument.

However, receiving direct transfers before regulatory requirements are completed may indicate that an offering has begun without proper compliance and may aggravate liability where accompanied by a public invitation or by receiving funds outside a lawful framework.

XII. Liability of Founders and Board Members

Founders and board members do not automatically incur liability merely because an offering violation occurred. It is necessary to determine who made the marketing decision, issued instructions, approved the prospectus or advertising materials, received the funds or assisted in doing so, and whether any supervisory or disclosure duties were breached.

Civil liability may arise alongside criminal liability where investors suffer damage and fault, damage and causation are established. Joint and several liability is not presumed except where prescribed by law or where responsible persons are proven to have participated in the harmful act.

XIII. Liability of Intermediaries and Issue Managers

An offering may involve an issue manager, promoter, underwriting company or licensed financial adviser. These parties are subject to independent professional and regulatory duties and may not carry on a non-banking financial activity requiring a licence without obtaining one.

Each party’s liability depends on the scope of its licence and engagement, the representations it made and its knowledge of the violation. Responsibility should not be shifted entirely to the issuer where an intermediary is proven to have exceeded its mandate, nor is the issuer automatically exempt merely because it retained a licensed intermediary.

XIV. Liability for Misleading Statements Accompanying the Invitation

The invitation may be unlawful because the offering requirements were not satisfied and, at the same time, misleading in its substance. If the campaign contains inaccurate information concerning profits, assets, returns or guarantees, additional liability may arise under the Capital Market Law, Companies Law or Penal Code depending on the facts.

It is important to distinguish the offence of making or conducting an unlawful offering from the offence of recording inaccurate information. Each has its own elements, potential offenders and evidence.

XV. Does an Unlawful Offering Automatically Invalidate the Entire Subscription Process?

It is incorrect to assume that every regulatory violation automatically invalidates all subscriptions, share allocations and refunds with interest. The law, the Authority or the courts may prescribe different consequences depending on the nature of the defect, the stage of the transaction, whether it can be remedied and the legal position of investors.

There are cases in which subscription monies must be refunded under the Implementing Regulations, while in other cases an investor may need to bring a damages claim, an invalidity action or a restitution claim based on the appropriate legal ground.

XVI. Can the FRA Automatically Remove Management or Freeze Bank Accounts?

The Financial Regulatory Authority has broad supervisory powers over non-banking financial activities and may take regulatory measures or refer violations for investigation under the applicable legislation. It is nevertheless incorrect to assume that a fixed sanction always takes the form of removing managers or freezing accounts whenever an unlawful invitation is discovered.

Freezing bank accounts requires a legal basis and a decision from the competent authority. It does not arise automatically from a complaint or from placing an entity on a warning list.

XVII. Cross-Border Employee Share Plans (ESOPs)

It should not be assumed that every employee share plan issued by a foreign company necessarily requires a prior exemption in the same form. It is necessary to examine whether the offer constitutes an offering of securities in Egypt, the nature of the beneficiaries, the implementation mechanism, whether a local intermediary or public marketing is involved, and the FRA rules in force.

International groups should therefore obtain local legal review before circulating offering materials to employees in Egypt, rather than applying traditional public-subscription rules mechanically.

XVIII. Crowdfunding and Digital Platforms

Crowdfunding or platform-based investment models may be subject to specific regulations depending on their structure and should not automatically be characterised as public subscription or unlawful receipt of funds. The decisive factors include the nature of the right acquired by the funder, how the money is managed, the platform’s status and the target audience.

Where a platform invites the public to purchase shares or financial instruments without satisfying regulatory requirements, the Capital Market Law becomes central to the analysis. Where it receives funds to deploy or invest on behalf of the public, Law No. 146 of 1988 may also need to be examined.

XIX. Evidence Used in Investigations or Disputes

Relevant evidence may include sponsored advertisements, landing pages, presentations, emails, WhatsApp messages, investor lists, subscription forms, bank transfers, board minutes, correspondence with intermediaries, and copies of the prospectus or information memorandum before and after approval.

Original digital copies, publication and amendment metadata, and the source of each message should be preserved. Campaigns should not be deleted or altered after an investigation begins without proper documentation, as doing so may affect the assessment of the facts and integrity of the evidence.

Checklist Before Launching Any Funding Round

• Determine whether the offered right is a share, security, financial instrument or another contractual right.
• Determine whether the offer is public or private and identify the characteristics and number of target investors.
• Confirm that the company’s legal form permits issuance of the proposed security.
• Identify the required regulatory document: subscription prospectus, offering prospectus, information memorandum or another document.
• Verify FRA approvals and the internal corporate resolutions required before marketing begins.
• Review all advertising messages and digital materials before publication.
• Identify the accounts or licensed entities legally permitted to receive funds under the transaction structure.
• Document the roles and responsibilities of founders, managers, intermediaries and advisers.

XX. Practical Response Upon Discovering an Unlawful Invitation

Any new public campaign should be suspended, all evidence preserved, the scope of recipients and amounts collected identified, and the company’s legal form and regulatory documentation reviewed. The available options for rectification, refunding monies or communicating with the Authority should then be assessed under the provisions in force.

Representations or responses should not be sent to investors or regulators before specialist legal review, particularly where the facts may fall within more than one criminal or regulatory regime.

When Is Specialist Legal Counsel or Local Counsel in Egypt Necessary?

Legal intervention is essential before announcing any funding round open to the public, when moving from private financing to a broader marketing campaign, where a limited liability company is considering offering its quotas to a body of investors, or upon receiving an inquiry or summons from the FRA or the Public Prosecution.

Local Counsel is also important for international companies offering employee share plans or securities issued by a foreign parent to beneficiaries in Egypt, or when using digital funding platforms.

How Can Specialist Legal Support Help?

El Rouby Law Firm advises on structuring financing and offering transactions, reviews the distinction between public and private offerings, prepares and reviews subscription prospectuses and information memoranda, assesses marketing campaigns, coordinates with licensed entities and the Financial Regulatory Authority, and manages investigations and disputes relating to subscription or receipt of funds.

The firm also provides Local Counsel services to foreign companies, investment funds and investors seeking to finance Egyptian companies without inadvertently conducting an unlawful public offering.

Conclusion and Contact

The fundamental rule is that raising capital from the public is not an activity that can be concealed behind broad commercial labels. Its true legal character is regulated according to the type of security, the method of offering and the target audience. The Capital Market Law, Companies Law and Law No. 146 of 1988 on receiving public funds must be distinguished from one another, and it should not be assumed that every violation produces the same consequences. El Rouby Law Firm can review the structure of a funding round or offering before launch or manage an existing dispute.

Frequently Asked Questions

May a Limited Liability Company Invite the Public to Subscribe for Its Quotas?

No. Article 162(4) of the Companies Law criminalises inviting the public to subscribe for securities for the account of a limited liability company.

When Does a Public Subscription Require an Approved Prospectus?

Article 4 of the Capital Market Law provides that securities or financial instruments may not be offered to the public by way of public subscription without a subscription prospectus approved by the Financial Regulatory Authority in accordance with the prescribed forms and regulatory requirements.

Does Advertising on Social Media Automatically Make an Offering Public?

Not merely because of the medium used. However, it may constitute strong evidence where the offer is open to an undefined audience. The legal characterisation depends on the campaign content, the target audience and the applicable regulatory requirements.

Is a Private Placement Completely Exempt from FRA Oversight?

No. Private placements are subject to their own regulatory requirements concerning the type of security, investors, disclosure and marketing method.

Does Every Investment Invitation Fall Under Law No. 146 of 1988 on Receiving Public Funds?

No. Law No. 146 regulates receiving public funds for deployment, investment or participation and must be distinguished from securities issues governed by the Capital Market Law.

Does an Unlawful Offering Automatically Lead to Account Freezes or Removal of Managers?

No. Such measures require a legal basis and action by the competent authority; they do not arise automatically from the existence of a violation or complaint.

Legal and Official References

• Financial Regulatory Authority: Capital Market Law No. 95 of 1992, as amended.
• Financial Regulatory Authority: updated Implementing Regulations of the Capital Market Law.
• Companies Law No. 159 of 1981, as amended, particularly Article 162(4).
• Financial Regulatory Authority: licences, warnings, and rules governing offerings and subscriptions.