What is an Offering Circular?
An offering circular is a prospectus for a new security listing. It is delivered to individuals and brokerage houses who are interested in potentially purchasing the newly issued mutual fund or stock. It may be slightly abbreviated from the final, long-form prospectus, but is still required to contain specific information. Offering circulars are required to contain certain pieces of information that are meant to be helpful to a prospective investor in deciding whether or not the investment is suitable for their interests. This information includes items such as the issuer of the security, the objective of the mutual fund or the purpose of the stock issue, the terms of the issue, and any additional information that could be helpful to a prospective buyer.
An offering circular should not be confused with a red herring or preliminary prospectus. The preliminary prospectus, or red herring, is issued during the IPO process and is intended to generate interest in the new issue. It lacks many of the specifics regarding the new issue. The offering circular is a more complete document and should be viewed before making a final decision about an investment.
BREAKING DOWN Offering Circular
An offering circular allows investors to access information regarding a new issue. It provides them with very important information about the security such as financial information about the issuer, the objective of the fund or purpose of the funds being raised, and other terms of the security issuance. The offering circular is a legal document and is a requirement for many, but not all, new issues. It is important to distinguish it from the red herring, or preliminary prospectus, which lacks significant details about the new issue. The red herring is a promotional item passed out to potential investors early on in the IPO process to solicit indications of interest and does not include the crucial information that an investor should review before purchasing a security. However, this important information is included in the offering circular.