DEFINITION of 'Letter Of Comment'

A letter from the Securities and Exchange Commission that is sent to a company in response to filing its registration statement. The main purpose of the comment letter is to assist the issuing company in making the information in their registration statement (or S-1) clear, transparent and free from irregularity before an issuance of new shares.

The items covered in a registration statement include the company's financial details, operations and management history, and any other important facts. The letter will typically be informal in nature, and is done as a courtesy, saving both the company and the SEC time and frustration down the road, and protecting investors from any misleading or inaccurate information.

BREAKING DOWN 'Letter Of Comment'

Publicly-traded companies can greatly cut down on the time needed to come to market with new issues if they can anticipate what comments might come from the SEC and address them before the registration statement is first completed. The registration statement will become "effective" when all facts have been signed off by the SEC.

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