Pre-IPO Disclosures – What is included in a prospectus? – (52)

Counsel and Experts. These two sections identify counsel to the company and the underwriters and the accountants who have audited the company’s financial statements. “Experts” will also identify anyone else who has “expertized” any information in the prospectus.
A good prospectus sets forth the “investment proposition.” As a disclosure document, the prospectus functions as an “insurance policy” of sorts in that it is intended to limit the issuer’s and underwriters’ potential liability to IPO purchasers. If the prospectus contains allSEC-required information, includes robust risk factors that explain the risks that the company faces, and has no material misstatements or omissions, investors will not be able to recover their losses in a lawsuit if the price of the stock drops following the IPO.
A prospectus should not include “puffery” or overly optimistic or unsupported statements about the company’s future performance. Rather, it should contain a balanced discussion of the company’s business, along with a detailed discussion of risks and operating and financial trends that may affect its results of operations and prospects.
SEC rules set forth a substantial number of specific disclosures required to be made in a prospectus. In addition, federal securities laws, particularly Rule 10b-5 under the Exchange Act require that documents used to sell a security contain all of the information material to an investment decision and do not omit any information necessary to avoid misleading potential investors. Federal securities laws do not define materiality; the basic standard for determining whether information is material is whether a reasonable investor would consider the particular information important in making

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