Registration of a Public Offering with the Securities and Exchange Commission
A company that decides to sell its stock to the public must file a registration statement with the Securities and Exchange Commission. The registration statement is made public as it is filed. However, the company may not sell its securities described in the registration statement until staff of the Commission has declared that the registration statement is effective.
The registration statement is made in two parts. The first part is the prospectus or document that is provided to the public describing the stock being sold. The company or “issuer” of the securities must describe its operations, financial condition and management in the prospectus. Every person to whom the company offers the new shares and every person who purchases the new shares must be given access to a prospectus. Part two of the registration statement contains additional information about the company that the staff of the Commission will review before declaring the registration statement effective. This additional information is not included in the prospectus, but it is available to the public through the Commission’s website.
Form S-1 is the basic registration form that most companies use to register their new stock offering, although there are simplified registration forms for small business stock issuers. As a rule, the Form S-1 registration statement is filled out in full, readable sentences rather than single words or phrases that might be found in a computerized form with blanks to fill in.
The prospectus included with the registration form must contain full disclosure of information on the following topics concerning the company:
- The business of the company;
- Its properties;
- Its competition;
- The identity of its officers and directors;
- The compensation received by the officers and directors;
- Any material transactions between the company and its officers and directors;
- A description of any significant legal proceedings involving the company or its officers and directors;
- How the securities to be offered will be distributed; and
- What the proceeds from the public offering will be used for.
The information to be provided in each category of information on Form S-1 is described in rules of the Securities and Exchange Commission. In addition to information required by those rules, registration statements must also contain audited financial statements prepared by an independent certified public accountant.
There is a catch-all requirement regarding public offerings. In addition to information specifically required in Form S-1, a company offering its securities to the public must also provide any information that is necessary to make its disclosures in its registration statement and its prospectus complete and not misleading. Potential investors also must be informed regarding any risks that a purchaser of the stock will be taking. Examples of such risks that must be fully disclosed to potential investors include:
- Lack of a business operating history;
- Adverse economic conditions in the industry in which the company operates;
- Any indication of a lack of a market for the securities being offered; and
- Any dependence of the company upon key personnel or other factors that may impact the company’s operations but are subject to change.
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