SEC Form 424B5

What Is SEC Form 424B5?

SEC Form 424B5 is a supplemental prospectus a company must file with the Securities and Exchange Commission (SEC) prior to launching an initial public offering (IPO)—should it wish to make changes to the essential offering information previously stated in earlier documents.

Key Takeaways

  • SEC Form 424B5 is a corrected prospectus addendum that a company must file when it realizes that previously-stated offering information is incorrect or incomplete.
  • SEC 424B5 most often follows up Form 424B2, which contains the initial round of offering data.
  • Companies must file Form 424B5 as a provision under the Securities Exchange Act of 1933.

Understanding SEC Form 424B5

SEC Form 424B5 mandates companies to clarify or update securities offering information before going public. These follow-up prospectuses help investors evaluate companies they are contemplating investing in, so they can make clearheaded decisions.

The form is generally used to clarify data originally provided by Form 424B2, including the intended opening share price of the stock, the number of overall shares the company plans to issue, and any other pertinent data that may influence an investor's decision on whether or not to invest in the company.

If a company recognizes the need to clarify existing information, it must itemize any adjustments in Form 424B5, then file the document within two business days of determining such changes are deemed necessary. All of this must occur prior to the date of the IPO.

Requirements for SEC Form 424B5

SEC Form 424B5 must be filed in accordance with Rule 424(b)(5) of the Securities Exchange Act of 1933. This legislation was passed to ensure that registration statements and prospectuses contain the risk and reward metrics consumers need to make informed investment choices about new securities offerings.

The act holds directors, attorneys, accountants, underwriters, and any other signatories of registration statements civilly liable for false and misleading statements contained within these documents. Any party that willfully violates the Act of 1933 is subject to a five-year prison sentence, a $10,000 fine, or both.

These stringent penalties were developed in the wake of the stock market crash of 1929, which was largely caused by a severe lack of market transparency. By stimulating increased disclosure in financial statements, the act aims to reduce securities fraud and prevent future fiscal crises.

SEC Form 424B5 is often drafted by the underwriting firm that launches a company's initial public offering (IPO), which is typically an investment bank.

Example of SEC Form 424B5

On May 18, 2016, Tesla Motors, Inc. issued a Form 424B5 filing when it augmented the number of common stock shares it was rolling out for its IPO. The actual wordage in the document included the following sentences:

"We are offering 6,800,000 of the shares to be sold in the offering. The selling stockholder identified in this prospectus supplement is offering an additional 2,777,901 shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholder. Our common stock is traded on the Nasdaq Global Select Market under the symbol “TSLA.” The last reported sale price of our common stock on May 17, 2016, as reported on Nasdaq, was $204.66 per share."