The registration of securities under the Securities Act of 1933 was designed to provide potential investors with full and fair disclosure of all material information relating to the issuance of securities, including such information as the principal purposes for which the offering’s proceeds will be used. Individual states have also enacted “blue sky” laws to protect investors against securities fraud by requiring sellers to register the securities they are offering and to provide financial details.
Unless exempt, a registration for all public offerings, which is signed by the issuers executive officers, financial and accounting officers, and a majority of its board of directors, is submitted in triplicate to the SEC along with the required filing fee and a prospectus.
A legitimate prospectus will have the SEC’s no approval clause on the front page, which indicates that the SEC does not give an opinion of the security’s merit or promises the adequacy of the information in the prospectus. The role of the SEC is simply to protect against misleading information and to assure the registration of a new issue is completed.
The prospectus does not offer investment advice; it does not indicate that the SEC approved the issue or verified the information. It simply means the company has filed all the paperwork needed to go ahead with the issue. The prospectus contains the following required information.
• Name under which the issuer is doing business
• State or sovereign nation under which the issuer is organized
• Statement of purpose of the issuer’s business; its general nature
• Copies of the articles of incorporation
• Copy of underwriting agreement, including the underwriter’s commissions and discounts
• The location of the headquarters plus the names and addresses of:
o All directors
o The chief executive, financial and accounting officers
o The underwriters
o All persons owning 10% or more of the company
• A statement of the issuer’s capitalization, including the authorized and outstanding amount of stock
• Specific amount of shares held by the senior officers, directors and underwriters
• Estimated proceeds from offering the securities and its proposed use
• The public offering price of the security – if not established, then the method which will be used to determine the price
• Financial statements, including earning statements from the past three years
• The balance sheet as of a date not more than 90 days prior to the date of the registration statement filing
• An income statement showing profits or loss
A twenty-day cooling-off period follows the SEC’s reception of the registration statement. During this time, the issuer may send prospective investors a preliminary prospectus, known as a red herring. (A copy of the red herring must be included in the information sent to the SEC.) It is wise to note, however, that the purpose of the red herring is simply to give the issuer of the new securities an indication of interest from the potential investors. While it presents the essential facts of the new issue and may even include an expected price range, it contains neither the actual price nor the effective date. No sales are legal before the effective date and only the preliminary/red herring prospectus may be sent to prospective investors.
Contact Virtual Paralegal Services for assistance with writing your prospectus.