DEFINITION of 'Preliminary Prospectus'

A preliminary prospectus is a first draft registration statement that a firm files prior to proceeding with an initial public offering (IPO) of their securities. The document, filed with the Securities and Exchange Commission (SEC), is intended to provide pertinent information to prospective shareholders about the company's business, managers, strategic initiatives, financial statements, and ownership structure.

The preliminary prospectus solicits expressions of interest in the new issue.

BREAKING DOWN 'Preliminary Prospectus'

The SEC requires that companies print their preliminary prospectus with red ink on the left side of the cover; as a result, the document has been nicknamed the "red herring." A preliminary prospectus has a bold disclaimer on the cover page that states that the registration has not yet become effective. The information that the prospectus contains is, therefore, incomplete and subject to change. Until the registration becomes effective, the securities may not be sold, and the issuer may not accept any offers to buy.

Once the registration statement becomes effective, the company disseminates a final prospectus that contains the IPO price range and issue size. Expressions of interest then convert to orders for the issue at the buyer's option. The minimum period between a registration statement filing and its effective date is 20 days.

The preliminary prospectus comes in tandem with the issuer’s IPO roadshow. In a roadshow, the company’s senior management and the underwriters travel around the country to present to analysts and fund managers to generate excitement for the company’s securities. Roadshows are critical to the success of initial offerings.

Preliminary Prospectus and IPO Roadshow Details

A roadshow may be limited to a single country or may include international stops, depending on the type, size, and hype around the company. In 2012, for example, Facebook started its roadshow in New York City and made stops in Boston, Chicago, Denver, and eight other cities. These are relatively standard stops for roadshows within the United States. Underwriters often run the roadshows, given their financial and deal-making expertise.

Facebook began its roadshow presentation with a video, which differed in many respects from other company presentations. In contrast with a traditional power point presentation, Facebook’s video had higher production values and included a soundtrack. It explained Facebook’s business, mission, and thesis about social connectivity and technological change for someone without a background in the industry.

After some pushback from investors that the video took up too much time in the presentation, Facebook dropped it from the second half of its roadshow and instead let senior management speak. Combined with a preliminary prospectus, this information helped Facebook’s investors make their final decisions.

  1. Final Prospectus

    A final prospectus is the final version of a prospectus for a ...
  2. SEC Form S-1

    SEC Form S-1 is the initial registration form for new securities ...
  3. SEC Form 424A

    SEC Form 424A is a prospectus form that a company must file if ...
  4. Offering Circular

    An offering circular is a prospectus for a new security listing. ...
  5. Subscribed

    Subscribed refers to newly issued securities that an investor ...
  6. SEC Form SP15D2

    A form that concerns the filing of a special financial report ...
Related Articles
  1. Investing

    SEC Filings: Forms You Need To Know

    The forms companies are required to file provide a clear view of their histories and progress.
  2. Investing

    Interpreting a Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report. It can tell you a lot.
  3. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  4. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  5. Investing

    12 things you need to know about financial statements

    Before investing, discover 12 characteristics of financial statements that can help you evaluate companies and increase your chances of choosing a winner.
  6. Investing

    The Issuance Procedure of High-Yield Bonds

    The issuance of corporate high-yield bonds can have several advantages over equity. A closer look.
  7. Investing

    How To Efficiently Read An Annual Report

    Learn how to read between the lines and decipher the actual condition of a company.
  1. How to Get a Company's Prospectus

    Obtaining a company's prospectus—or other financial documents—is now a simple online task. Read Answer >>
  2. Is a private company required to show financial information?

    Understand whether a private company is required to disclose financial information to the public. Learn what is required ... Read Answer >>
  3. What is the difference between a compiled and a certified financial statement?

    All publicly-traded companies are required to provide financial statements, including a balance sheet, cash flow statement ... Read Answer >>
  4. What information does my employer have to give me regarding my 401(k) plan?

    Obtain 401(k) plan information like a summary plan description, summary annual report and annual statement of account information ... Read Answer >>
  5. What are the differences between a 10-K report and a firm's own annual report?

    Understand the key differences between a corporation's own annual report and its 10-K report filed with the SEC and how investors ... Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center