What Are the Parts of a Prospectus?

by Eric Fox ; Updated July 27, 2017

A prospectus is a legal document required by the Securities and Exchange Commission (SEC) for companies that are registering securities for sale to the public. The document is required under regulation C of the Securities Act of 1933.

Prospectus Summary

The first part of the prospectus is the summary of the registration, which outlines the business the company is engaged in and gives a snapshot of what the proceeds of the sale will be used for. It also provides highlights of the income statement, balance sheet and cash flow statement. The summary is meant to give investors a cursory review of the entire offering in an easy-to-read format.

Risk Factors

Another part of the prospectus lists the risk factors the company faces when conducting its business. These risk factors can be macroeconomic or competitive ones.

Legal Disclaimer

Another section contains a statement by the company that the information in the prospectus is based on “forward-looking statements that involve substantial risks and uncertainties.” This is used to defend the company legally if something happens after the offering that causes losses to investors.

Use of Proceeds

This section details exactly what the company will do with the funds received from the sale. Typical reasons include debt repayment, acquisitions or general corporate purposes.

Other Sections

Other important sections of a prospectus include the management’s discussion and analysis of financial conditions and results of operations--basically a detailed account of the company's business and operations over the last several years.