What Is a Letter of Comment?

A letter of comment—or a comment letter—is a letter from the Securities and Exchange Commission (SEC) that is sent to a company in response to filing its registration statement.

Key Takeaways

  • A letter of comment is a letter from the Securities and Exchange Commission (SEC) 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, also called an S-1 form, clear, transparent, and free from irregularity before an issuance of new shares.
  • Comments from staff members at the SEC’s Divisions of Corporate Finance and Investment Management will be made based on the information disclosed by the company in its initial filing.

Understanding a Letter Of Comment

The main purpose of the comment letter is to assist the issuing company in making the information in their registration statement, also called an S-1 form, clear, transparent, and free from irregularity before an issuance of new shares. These letters are stored in the SEC’s EDGAR database (the SEC began releasing these communications to the public after August 1, 2004).

A comment letter may also refer to the letters that entities and individuals send to the SEC in response to its requests for public comment on proposed rules, amendments to rules, or concept releases.

The items covered in a company's registration statement include the company's financial details, operations and management history, and any other important facts. Comments from staff members at the SEC’s Divisions of Corporate Finance and Investment Management will be made based on the information disclosed by the company in its initial filing. The letter will typically be informal in nature, and it is done as a courtesy; it is intended to save both the company and the SEC time down the road in the event of any errors or inconsistencies. It is also intended to protect investors from any misleading or inaccurate information. Letters of comment are based on SEC staff’s understanding of the company’s circumstances and are a matter of public record.

SEC staff might use the letter of comment to ask the company to provide further supplemental information so that they can come to a stronger understanding of the company’s disclosure and its implications. The letter of comment may ask the company to revise its disclosure, provide an additional disclosure, or file a different disclosure in a future SEC filing. Staff may exchange multiple rounds of letters of comment with the company in order to identify issues in the filing and resolve them. 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. They are well-advised to 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. Letters of comment do not constitute official statements regarding the views of the SEC. They simply elucidate staff opinions, and are limited to the facts of the specific filing in question; they cannot be applied to other filings.