The prospectus is a document that provides an overview, or summary of a company's business and assets. This is often used as an important document to compare different companies when choosing which one to invest in. This blog post will help explain the process in general and what the requirements are for any company seeking this kind of development.
What is a Company's Prospectus?
To break it down, "prospectus" refers to a summary of what the company does or has done, so "proper" would designate that this document tells people about the proper business activities that have been done by the said company thus far. A prospectus is generally issued to the public prior to the sale of any securities such as stocks or bonds. The goal is to provide investors with detailed information that isn't available in a company's annual report. This includes important risks and any relevant business information that should be understood by potential investors.
What is a company prospectus used for?
In order to make more investors aware of what a company is up to, it is required that they release their prospectus. This is done in a bid to create transparency among potential investors, and therefore help make whoever invests in the company make the best decision possible. Therefore there are no hard requirements that must be followed when creating this document. This can be done on an as-needed basis or just when the company decides that a public document release would be better for them.
How to get a company prospectus?
There are a few things you should keep in mind when drafting your prospectus:
1) Maintain transparency by disclosing any potential conflicts of interest, especially those related to information provided to the Securities and Exchange Commission (SEC).
2) Identify risks early on, including both financial and non-financial risks.
3) Avoid using specific examples to illustrate your point as they may not be seen as factual by the public. This can be especially true when it comes to numbers and statistics.
4) Always include how you will utilize any funds you receive from investors, such as their potential use in the business or how they will be secured if you are unable to meet your obligations.
5) Do not take advantage of any loopholes in the law if you cannot provide proof that these exceptions will benefit everybody involved on equal ground at all times.
6) Maintain a professional and formal tone throughout the document as this is an impersonal, unbiased portrayal of your company's goals and accomplishments.
7) Focus on what you want to say. Sometimes extraneous details can distract from your message.
Most important of all, you must remember that this document is meant to protect those who are investing their hard-earned money in your company, and therefore needs to be a balanced and fair depiction of whatever venture they decide to take part in. If a legal expert is needed, this is the document that will require the use of one. It is highly recommended that businesses seeking to create a prospectus seek legal help in order to ensure their company does not get into any legal trouble with their investors because of mistakes made within the prospectus.
Company prospectus requirements
The prospectus should contain a variety of things. It is basically the main plan of the business and must be completely factual. A basic down-to-earth look at what is contained in your prospectus would be the following points:
1. Company Overview
The company's name, address, and telephone number along with its present address, incorporation date, capital structure, and key executives should be included in your prospectus. You should also include details on how many years you have been in the industry or business in question as well as when you expect to turn profitable and your future plans for growth.
2. Products and/or Services
Include a description of your company and what it does, what the company does to ensure this, and an estimated value for your company based on potential earnings. Describe any special features of your plan in the event that it may help investors see the worthiness of investing in the business or products.
3. Business Operations and Strategy
A description of how different departments within your company function such as sales, marketing, operations, and finance should be included. Additionally, explain how direct competitors are being targeted as well as a plan for future growth if you have one in mind.
4. Financial Plan and Sources of Financing
Include a financial plan for the years and source of funding for your company. This should include a statement on how you will be able to fund any future expansion goals if you have any as well as how long it will take before profits are seen and how much it will cost to finance the business that year, as well as in the future. It is best to not include any key figures such as projected profits until these are known. Additionally, it must detail how the financial statements were obtained and give verification on what they represent, such as something similar may look or sound like but may prove to be completely different, especially in regards to an inventory of liquid assets or liabilities.
5. Risk Factors and Considered Events and Actions
If a business is new or has had to deal with any risks or challenges in the past, these must be included in your prospectus. Additionally, it should detail how you intend to handle any problems that may arise, such as the possibility of being sued for patent infringement.
6. Appendices
This is where all of your supporting documents and evidence will be placed if necessary, such as financial statements, product pictures, or brochures for example. Your prospectus should also include tax returns if available so that investors can truly see how much it will cost to run your company during its operations.
Takeaway
As you can see, no matter where you live in the world there shalt be laws governing what topics must be included when creating a prospectus. Most importantly, you must be able to show that it will benefit not just your business, but everybody who is involved. If you are still uncertain whether or not a prospectus is right for your business, consult a legal expert to help clear things up for you.
