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.
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.
Investigating New Offerings
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.
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.