We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Preliminary Prospectus?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 7,706
Share

In the broadest sense, a preliminary prospectus is a document that is a first draft of document that includes provisions for making changes at a later date. The main function of this type of document is to provide basic information that is relevant to an upcoming business transaction, including data relating to the company that is executing the transaction, how it is organized, who is in charge, and how the company envisions the implementation of the proposed action. At the same time, the preliminary nature of the document leaves the door open for refining the data included, when and as needed.

Sometimes referred to as a preliminary statement, one of the most common uses of a preliminary prospectus has to do with the creation of an initial public offering. In this scenario, a company creates a statement regarding plans to make such an offering, and files it with the appropriate governmental agency or commission. Governmental regulations dictate the type of information that must be included in this preliminary statement, but most nations would require background on the history, operating structure, and financial stability of the business to be included. As part of the format, text must be included to indicate that parts of the document may be changed at a later date.

For example, a business operating in the United States would submit a preliminary prospectus to the Securities & Exchange Commission for review before making any type of public offering. Because the Commission requires has traditionally required that red ink be used for parts of the text, this has earned this type of prospectus the nickname of ”red herring.” The nickname has come to be used to identify anything that is not in its final form, and is still subject to change.

It is also common for a preliminary prospectus to include information about how the activity will be activity will be carried out. In the case of an initial public offering, this will include details about how many shares will be offered, the initial public offering price, and how the company will manage the distribution of the shares as they are sold. The idea behind the inclusion of this type of detail is to determine if the initiative has been well-planned, and appears to be in compliance with current regulations.

While the preliminary prospectus does leave open the possibility of the addition or amendment of the document at a later date, most companies will seek to make the document as close to the final draft as possible. For this reason, even the preliminary prospectus may be a highly detailed document that makes the intentions of the issuer very obvious, as well as structuring the strategy that will be used to achieve the desired goal. In the event that a prospectus does not contain what the regulatory agency considers essential data, the prospectus is rejected, and must be amended and resubmitted before the offering can move forward.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-a-preliminary-prospectus.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.