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In this instance we’re referring to a prospectus that must be filed when a company wants to sell shares to the public. This formal document must be filed with the securities commission and provide specific details on the investment offering.
The full list of what must be in a prospectus is found in National Instrument 41-101 General Prospectus Requirements and Form 41-101F1 . Form 41-101F1 states: “The objective of the prospectus is to provide information concerning the issuer that an investor needs in order to make an informed investment decision.” This long list of requirements encompasses too much information for a simple blog post, but we will outline some of the basic information required and some of the reasoning behind it.
At the beginning of a prospectus a “Summary of Prospectus” outlines information “appearing elsewhere in the prospectus that, in the opinion of the issuer or selling securityholder, would be most likely to influence the investor’s decision to purchase the securities being distributed”
Included in the summary are:
- the principal business of the issuer and its subsidiaries
- the securities to be distributed, including the offering price and expected net proceeds
- the use of proceeds
- risk factors
- financial information
As the summary description states this information also appears within the prospectus in greater detail.
Some of the other sections that must be included in a prospectus are:
Describe the Business:
This section describes the business of the issuer, including the products it makes, services it provides and any operating segments it might have. This section must also include any bankruptcy, receivership or similar proceedings the business has faced, and the nature and results of any material restructuring.
Use of Proceeds:
The estimated net proceeds from the sale of securities must be disclosed along with how these proceeds will be used by the issuer.
Description of Securities Distributed:
A description of the type of securities being distributed must be disclosed. They must be identified as equity securities, debt securities, derivatives, or asset-backed securities. Each type has a list of disclosures that must be described.
Directors & Executive Officers:
A complete list of all directors and executives in the company must be disclosed along with any conflicts of interest the might have.
Risk Factors:
This section must disclose all material risk factors related to the issuer and its business such as cash flow or liquidity problems. Other possible risks include general risks inherent in the business, environmental and health risks, regulatory constraints, economic or political conditions and financial history. Any matter that could influence an investors decision to purchases securities from the issuer must be disclosed.
Financial Statement Disclosure for Issuers:
There is a long list of financial statements that must be disclosed in a prospectus, which includes but is not limited to, a statement of comprehensive income, a statement of changes in equity, and a statement of cash flows for each of the three most recently completed financial years and a statement of financial position for the last two years. There are other financial disclosures that may needed, dependent on the issuers situation. These can be found in Section 32 of Form 41-101F1.
This is simply a brief rundown of some of the key information that must be disclosed on a prospectus. The full list is much longer and includes many minute details on how the company is run, funded, and how the securities will be sold. If you would like to learn more about what is in a prospectus please review NI 41-101 and Form 41-101F1.