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What Is a Prospectus?

A prospectus is the legal offering or selling document that is a part of a company's Registration Statement, which the company is required to file with the Securities Exchange Commission (SEC) before it can issue new securities to the general public. The prospectus contains important facts about the company's business operations, financial condition, and management. Everyone who buys the new securities or has made an offer to purchase them must be allowed access to the prospectus.

What Is Not Included In a Prospectus?

A prospectus is normally not required to include:

  • Copies of underwriting agreements
  • Opinions of counsel about the company
  • Copies of material contracts
  • Articles of incorporation and bylaws
  • Copies of underlying agreements relating to the offered securities

Why Is a Prospectus Important?

A prospectus enables new investors to have full disclosure of all "material facts" they might find important in making an investment decision. Investors typically rely on the prospectus to be accurate when deciding whether to invest in the company.

What If a Prospectus Has Misleading Information?

Intentionally including false information or omitting material facts from a prospectus are forms of securities fraud. The issuing company, its key officers and directors, and any experts named in the Registration Statement (such as accountants) are liable for any false statements of material facts or misleading omissions contained in the prospectus. You may have a right to recover your money from the issuing company and its controlling people if you rely on a factually-inaccurate prospectus to make an investment.

Do I Need an Attorney If I Relied On a False Prospectus?

If you lose money because you relied on a company's factually-inaccurate prospectus in making a decision to invest with them, you will want to consult with a business attorney to protect your rights. An attorney knowledgeable in securities law can advise you whether there is the possibility of recovering your money. Under some circumstances, the attorney may also be able to represent you and other persons who have also been defrauded in a class action.

Photo of page author Kristen Johnson

, LegalMatch Legal Writer

Last Modified: 09-30-2014 02:51 PM PDT

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