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- What's in a Prospectus?
Investigating New Offerings
How to get a company's prospectus.
Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed.
A company's prospectus is a formal legal document designed to provide information and full details about an investment offering for sale to the public. Companies are required to file the documents with the Securities and Exchange Commission (SEC) . The prospectus documents must be made available to a prospective public investor prior to purchase. Investors are encouraged to read and understand the terms of the offering before making a purchase decision.
- A prospectus is a formal document that is required by and filed with the SEC that provides details about an investment offering for sale to the public.
- This document is used to help potential investors make a more informed decision on whether or not to invest.
- EDGAR is a public online tool that allows individuals and analysts to search for and retrieve corporate prospectus filings.
- Investors may also seek to obtain a prospectus through their broker or by contacting a company's investor relations department.
Mutual funds and hedge funds must also offer potential investors a prospectus; however, here we focus on firms' prospectus prior to a corporate IPO or secondary offering.
What's in a Prospectus?
Company prospectus documents have become increasingly accessible with the advent of the internet. Most companies have a corporate website with a section labeled Investor Relations that should have available a wide range of company documentation, including quarterly and annual reports . Many investment websites may also offer links directly to a company's or fund's prospectus documents.
The prospectus document is issued to inform investors of the potential risks involved with investing in a particular stock or mutual fund. The information provided in the prospectus also serves as a form of protection for the issuing company against any claims that information was not fully disclosed or detailed prior to the investor putting money into an investment.
Companies that wish to offer stock or bond for sale to the public must file a prospectus as part of the registration process with the SEC. Companies must file a preliminary and final prospectus. However, the SEC has specific guidelines as to what's listed in a prospectus for various securities.
The preliminary prospectus (sometimes known as a red herring ) is the first offering document provided by a security issuer and includes most of the details of the business and transaction. However, the preliminary prospectus doesn't contain the number of shares to be issued or price information. Typically, the preliminary prospectus is used to gauge interest in the market for the security being proposed.
The final prospectus contains the complete details of the investment offering to the public. The final prospectus contains any finalized background information as well as the number of shares or certificates to be issued and the offering price .
A prospectus will include the following information at a minimum:
- A brief summary of the company’s background and financial information
- The name of the company issuing the stock
- The number of shares
- Type of securities being offered
- Whether an offering is public or private
- Names of the company’s principals
- Names of the banks or financial companies performing the underwriting
Some companies are allowed to file an abridged prospectus, which is a prospectus but contains some of the same information as the final prospectus.
The first offering is detailed by the preliminary prospectus provided by the security issuer, which outlines information about the company, it's business plan and structure, and the transaction in question. The preliminary document also discloses names of the company's principals, details about the amount the underwriters are earning per sale and specifies whether the offering is public or private.
The final prospectus contains details and information about the finalized offering, including the precise number of shares or certificates being issued and the offering price of shares.
In the case of mutual funds , a fund prospectus contains information on and details about its objectives, proposed investment strategies , perceived potential risks, projected performance, distribution policy, fees and expenses and fund management.
In the U.S., all companies filing with the SEC must supply their documentation to a service known as EDGAR , or the Electronic Data Gathering, Analysis and Retrieval System. The EDGAR website allows you to get all the filings of a company, including its prospectus and annual reports, which include financial statements. The EDGAR database can be searched using the company ticker symbol. EDGAR’s Companies & Other Filers Search will list a company's filings with the most recent filings shown first. Most of the filings made through EDGAR are available for download or can be viewed for free.
Canada has a similar website known as SEDAR , or System for Electronic Documentation Analysis and Retrieval, which provides company filings on the web. Like EDGAR, the SEDAR website provides easy access to public company documentation.
As an example, the figure below, produced from EDGAR, shows a sample prospectus for the company PNC Financial Group's offering of corporate bonds maturing in the year 2024.
We can see the following information listed:
- Securities offered, which are senior notes that pay 3.50%
- The maturity date of the notes, which is January 23, 2024
- The issue date, which has yet to be determined
- How interest will be paid and denominations to be issued
- Use of proceeds or how the money raised will be spent, which might include financing operations, paying down debt, or buying back stock
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A legal disclosure document containing information about an investment offering to the public
What is a Prospectus?
A prospectus is a legal disclosure document that provides information about an investment offering to the public, and that is required to be filed with the Securities and Exchange Commission (SEC) or local regulator. The prospectus contains information about the company, its management team , recent financial performance , and other related information that investors would like to know.
Investors use the legal document to determine the growth and profitability prospects of the selling company to decide whether they will take part in the offering or not. In the U.S., the legal name of the public filing is an S-1 .
Prospectus for a stock or bond issue
When a company is issuing stocks or bonds , it publishes a prospectus to provide investors with all the information that they need to make an informed decision. The issuer provides both a preliminary and a final prospectus. A preliminary prospectus is the initial offering document that provides details about the proposed transaction. The final prospectus is offered when the offering’s been finalized and is being offered to the public for subscription.
Information in the final prospectus includes the number of shares issued, offering price, company’s financial data , risk factors, use of the proceeds, the dividend policy, and other relevant information. This information helps an investor make an informed decision on whether to invest in the company.
Prospectus for mutual funds
A mutual fund prospectus is a legal disclosure document that the SEC requires mutual funds to file and make available to interested investors. The details provided in the document include the fund’s objectives, risks, performance, distribution policy, executive team, investment strategies, etc.
A mutual fund may provide a summary prospectus, which is a few pages long and contains important information that investors require. It may also issue a statutory prospectus, which is long and extremely detailed, to provide investors with as much information as they may need to make a buying decision. Mutual funds are required to give investors the document after the purchase of shares. Investors can also access the information on the fund’s website.
Components of a prospectus
The following are the components of a prospectus:
Image of facebook’s S-1 .
#1 Overview and history of the company
The prospectus gives an overview of the company since its creation. It provides a chronology of events that have occurred over the years, such as those that have helped the company experience growth. It also includes information about the founders, company registration, and initial service offerings. This section may also include an overview of the company’s strategy and what management believes is its competitive advantage or “unique selling proposition” (USP).
#2 Services/products offered by the company
The services/products section lists the core economic activities undertaken by the company. The company provides information about the services and products provided to customers, and any additions to its operations over the years.
#3 Management profile
A prospectus also includes information about the company’s executive management . It outlines the management team’s experience and education qualifications that make them a good fit for the company. Investors want assurance that the company’s executives have what it takes to safeguard their investments.
#4 Desired deal structure
If the issuer is an existing company that has issued securities before, it may provide an overview of its current capital structure and how the new issue will affect the structure. For example, when selling bonds, the investors will be interested in knowing the level of the company’s debt and its ability to pay. Equity investors will want to see the current equity ownership structure and how their investment will influence the structure and the expected rate of return .
#5 Use of proceeds
A company will often offer an issue of securities when it is unable to raise capital internally to finance a large investment. For example, the company may want to expand its operations to other geographical locations, acquire proprietary technology, purchase large machinery, finance the production of a new line of products, execute mergers and acquisitions (M&A) , etc.
#6 Security offering details
The prospectus also provides information on the number of securities that are being offered to the public and the price for each security. It should also state the expected rate of return on the investor’s funds. This section also provides information on the subscription period when interested investors can purchase the securities.
#7 Financial information
The prospectus should provide investors with information about the company’s past financial performance . The information may include EBIT, net profit, stock performance, etc. The security performance can be compared to a known benchmark such as the S&P 500 or Dow Jones Industrial Average.
#8 Risks involved
The prospectus should disclose the risks that investors face when investing in a mutual fund. For example, an international mutual fund may include a disclosure detailing the currency risks that investors face when investing in the fund.
Other risks that a company may reveal include possible capital restrictions, government regulations, individual investors holding large numbers of stocks, etc. The disclosures protect the company from accusations that it withheld vital information that caused the investors to incur losses.
Prospectus in the United States
When a company intends to issue securities to the public, it must file the prospectus with the SEC . The security issue must wait for the SEC to declare the registration statement effective before they can finalize the sale. The registration statement is only approved if the federal agency is satisfied that the security issuer has complied with all the rules governing disclosure.
However, there are certain exemptions when filing a prospectus with the SEC. If a security issue is from a company that has been consistent with their 10-K Form filling and reports a market capitalization above the required threshold, the company may issue a simplified version that incorporates the information into their 10K filings.
Prospectus in the United Kingdom
In the United Kingdom, a prospectus is required for a security that will be offered to the public or that wants to register on a regulated market such as the London Stock Exchange (LSE). The security issues are governed by the Prospectus Rules, an extension of the Prospectus Directive in European Law, and must be approved by the FCA – Financial Conduct Authority.
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Information to be stated in the Prospectus of a Company
In this article, Bhavesh Bhatia, a student pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata , discusses on information to be stated in a prospectus.
What is a prospectus.
A prospectus is a document issued by the company inviting the public and investors for the subscription of its securities. A prospectus also helps in informing the investors about the risk of investing in the company. A Prospectus is required to be issued only after the incorporation of the company. These documents describe stocks, bonds and other types of securities offered by the company. Mutual fund companies also provide a prospectus to prospective clients, which includes a report of the money’s strategies, the manager’s background, the fund’s fee structure and a fund’s financial statements. A prospectus is always accompanied by performance history and financial information of the company. The reason for accompanying such an information along with the prospectus is to make sure that, the investors are well aware of the company’s background and overall performance and the investors do not fall into the prey of investing in a bad company.
Definition of Prospectus under the Companies Act, 2013
Section 2(70) of the Act defines prospectus as, “A prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.”
Thus, it is clear from the above definition of the prospectus that, a prospectus is a just an invitation to offer securities to the public and not an offer in the contractual sense.
Companies that are required to issue a prospectus
- A public listed company who intends to offer shares or debentures can issue prospectus.
- A private company is prohibited from inviting the public to subscribe to their shares and thus cannot issue a prospectus. However, a private company which has converted itself into a public company may issue a prospectus to offer shares to the public.
Types of Prospectus under the Companies Act, 2013
There are four types of a prospectus, which are as under:
According to Section 2(1) of the Act, abridged prospectus means a memorandum containing such salient features of a prospectus as may be specified by the SEBI by making regulations in this behalf. It means that a company cannot issue application form for purchase of securities unless such form is accompanied by an abridged prospectus.
According to Section 25(1) of the Act, where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public. Any document by which such offer for sale to the public is made is deemed to be a prospectus by implication of law.
According to Section 31 of the Act, Shelf prospectus is a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. Only the companies which have been prescribed by the SEBI can issue a Shelf prospectus with the Registrar.
Red Herring Prospectus (RHP)
According to Section 32 of the Act, an RHP means a prospectus which does not have complete particulars on the price of the securities offered and quantum of securities to be issued. A company may issue an RHP prior to the issue of a prospectus. The company shall file RHP with Registrar at least three days prior to the opening of the subscription list and the offer. An RHP carries the same obligations as are applicable to a prospectus and any variation between the RHP and a prospectus shall be highlighted as variations in the prospectus
Matters to be stated in a prospectus
Under the companies act, 2013.
- According to Section 26 of the Act, every prospectus issued by or on behalf of a company must be dated and that date shall unless the contrary is proved, be regarded as the date of its publication.
- It shall state such information and set out such reports on financial information as may be specified by the SEBI in consultation with the Central Government.
- A copy of the prospectus shall be signed by every director or proposed director or by his agent must be delivered to the registrar on or before the date of publication.
- Every prospectus issued to the public should mention that a copy of the prospectus along with the specified documents has been filed with the registrar.
- If prospectus includes a statement made by an expert, the expert must not be engaged or interested in the formation or promotion or in the management of the company. A written consent of the expert should also be obtained before the issue of prospectus with the statement.
- A prospectus must not be issued more than 90 days after the date on which a copy thereof is delivered for registration. If a prospectus is issued it will be deemed to be a prospectus a copy of which has not been delivered to the registrar.
- A prospectus shall make a declaration about the compliance of the provisions of the act and nothing contained in the prospectus is in contravention of the provisions of the Companies Act, Securities Contracts (Regulation) Act, 1956 and Securities Exchange Board of India Act, 1992.
- Section 27 of the Act states that a company can vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, subject to the approval of an authority given by the company in general meeting by way of special resolution. The details of the notice in respect of such resolution to shareholders shall also be published in the newspapers in the city where the registered office of the company is situated.
Under the Companies (Prospectus and Allotment of Securities) Rules, 2014
- Rule 3 states that every prospectus issued shall contain the following information—
- The reports that the company needs to set out in the prospectus, are given in Rule 4 , which are as under
- Other matters and reports which are to be stated in the prospectus, are given in Rule 5 . They are as under
Misstatements in the Prospectus
Contravention of section 26 of the companies act, 2013.
- If a prospectus is issued in contravention of the provisions of this section, then the company shall be punishable with a fine, not less than fifty thousand rupees which may extend to three lakh rupees, and
- Every person who is party to the issue of the prospectus shall be punishable with imprisonment for a term which may to three years or with a fine, not less than fifty thousand rupees which may extend to three lakh rupees, or with both.
Criminal Liability for Misstatement in the prospectus
Where a prospectus is issued which includes any statement which is untrue or misleading in form or context or any matter is likely to mislead the investor, then every person who authorizes the issue of prospectus shall be punishable with imprisonment for a term which may not be less than six months, but which may extend to ten years; or a fine not less than the amount involved in fraud but it may extend to three times the amount of fraud; or with both.
Civil Liability for Misstatement in the prospectus
If there is any inclusion or omission of any matter in the prospectus issued, which is misleading and the person who has subscribed the securities has sustained any loss or damage, then the company and every person who is a director, promoter and expert at the time of issue of prospectus, shall be responsible and be liable for punishment under section 36 of the act, and shall be liable to pay compensation to every person who has sustained such loss or damage.
As seen above, a prospectus is a mandatory document for limited companies to commence their business, but its complicated procedure delays the operation of any business, therefore a number of organizations hesitate to issue prospectus to the general public for subscription of share capital & debentures.
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We develop the Prospectus for a wide range of investors. These include venture capital and private equity firms, angel investors, qualified institutional buyers (QIBs), other accredited investors and designated stock exchanges. Our team of industry professionals, consultants and securities attorneys has produced thousands of Prospectus and Offering Memorandums for both private and publicly-listed companies. In addition, many companies need a proper feasibility study showing the viability of the product or project. Indeed, our firm has assisted with hundreds of feasibility studies ranging from real estate, high tech, a plethora of inventions, energy such as oil and gas exploitation and much more.
Prospectus.com has consultants and offices in most of the world’s major financial hubs. We deliver high-calibre Prospectus and Offering Circular documentation as well as feasibility study reports for clients across the globe. From New York to Hong Kong, from the United Kingdom to the Cayman Islands, from Singapore to Seattle: Prospectus.com delivers . Our Principals produce reliable and compelling capital formation documentation that yields profitable results across all industry sectors.
A Prospectus is a commonly-used business document that provides prospective investors an overview of the company’s structure vis-à-vis its business model, financial plan, securities information, management team and other useful details. An instrument of corporate “best-practice” the Prospectus outlines the terms of the offering to assist and expedite the due diligence process. Because the company seeking investment will be offering some form of securities in exchange for the provision of capital – either in the form of debt or equity – the Prospectus includes valuable insight that informs and reassures the prospective investor. For any accredited investor, institutional or “high net worth”, the Offering Prospectus is the ultimate road map. It indicates how the company plans on being successful and details how the investor will realize return on their investment.
A feasibility study is an analysis regarding the viability of a project’s successful development. A feasibility report is conducted prior to undertaking a venture such as real estate development or construction project. The owners of the business along with the potential investors or banks will want to ensure that the venture is actually “feasible”. Thus, the usage of a feasibility study is the main document used in this assessment. A feasibility report can help save needed capital, including whether to determine to end a project or even start one. The study includes such vital information and data as the funding needs to complete the project, the market opportunity, government regulations, risk factors, strengths and weaknesses, management team profiles and the financials of the company. While a feasibility study somewhat sounds like a business plan, such reports tend to be many times longer with more details on the market and and emphasis on the financials. Our team members at Prospectus are experts in research and can assist in the writing of your company’s feasibility study.
The Prospectus, and by extension the Feasibility Study, Private Placement Memorandum or Offering documents, should accomplish the following objectives:
- Convey your message and your company’s business opportunity in a clear and concise manner.
- Showcase your intellectual property (“IP”) and unique product or service offerings.
- Highlight your team’s leadership capabilities and relevant experience in your industry.
- Detail your company’s current and future business plans and strategies.
- Show that the product or project is viable via the feasibility report.
- Discuss your exit strategy and quantify the investor’s return on investment./li>
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Reviewed by Vishnu | Updated on Mar 01, 2023
A prospectus is defined as a legal document describing a company’s securities that have been put on sale. The prospectus generally discloses the company’s operations along with the purpose of the securities being offered.
Types of Prospectus
*Deemed Prospectus * - As per Section 25(1) of the Companies Act, 2013, a document will be deemed to be a prospectus if the company agrees to allot or offer securities to the public.
Abridged Prospectus - It is defined as the brief summary of the prospectus, which includes all useful and materialistic information filed before the registrar. As per Section 33(1) of the Companies Act, 2013, an abridged prospectus must be included with the documents for the purchase of securities issued by a company.
Red Herring Prospectus - It is the prospectus that is required to be filed before the registrar prior to the offer. The prospectus generally lacks information such as the particular price or quantum of securities being offered.
Shelf Prospectus - It is defined as the prospectus issued by a company, bank or financial institution for more than one class of securities.
As per the Companies Act, 2013, a prospectus can include information such as advertisement, circular or notice among other legal documents inviting the public for the offering. Also, the prospectus should be issued only for the purchase of a company's securities.
In order for a document to be considered a prospectus, it should act as an invitation for the public to purchase of stocks/shares, debentures or other instruments. Also, the prospectus should be issued by the company or an institution on behalf of the company and made solely for the public.
In case a private company wishes to convert to a public company, it is required to either issue a prospectus or file a statement in lieu of prospectus of which the provisions are mentioned under Section 70 of the Companies Act, 2013.
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What is a registration statement?
Registration statements have two principal parts.
- Part I is the prospectus, that is, the legal offering or “selling” document that must be delivered to everyone who is offered or buys the securities. In the prospectus, your company must clearly describe important information about its business operations, financial condition, results of operations, risk factors, and management. The prospectus must also include audited financial statements.
- Part II contains additional information and exhibits that the company does not have to deliver to investors but must file with the SEC.
The basic form for registration statements—Form S-1
Any company may use Form S-1 to prepare a registration statement. Information about how to prepare the non-financial disclosures in the registration statement is set out in Regulation S-K . Information about the form and content of required financial statements is set out in Regulation S-X . In addition to the information expressly required by Form S-1, your company also must provide any other information that is necessary to make your disclosures not misleading.
Securities laws and SEC rules allow certain smaller companies and newly public companies to prepare their disclosures using streamlined rules designed to make compliance easier.
The SEC staff has issued guidance to aid small businesses in preparing these disclosures for initial public offerings of securities.
Additional Information and Resources
- Compliance Guide: Interactive Data for Financial Reporting
- Sarbanes-Oxley Section 404: A Guide for Small Business
- Plain English Handbook: How to create clear SEC disclosure documents (PDF)
- Compliance Guide: Primary Offerings of Securities on Forms S-3 and F-3
Modified: July 22, 2022
In general, a prospectus is a document that provides details about an offering made available to the public. More commonly, a prospectus is a formal document
A company's prospectus is a formal legal document designed to provide information and full details about an investment offering for sale to the public.
The prospectus gives an overview of the company since its creation. It provides a chronology of events that have occurred over the years, such
A document issued by a company to invite the public and the investors for subscribing the securities is called a prospectus. The prospectus contains detailed
A prospectus is a document issued by the company inviting the public and investors for the subscription of its securities. A prospectus also
The most common type of equity Prospectus is one that sells shares or stock in a company. In addition, a limited liability company (LLC) or a limited
Venture Capital and Private Equity assistance; Crowdfunding, Regulation A+ and Regulation D assistance; Company and Fund Formation Services; Shareholder and
A prospectus is defined as a legal document describing a company's securities that have been put on sale. The prospectus generally discloses the
In the prospectus, your company must clearly describe important information about its business operations, financial condition
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