Offering Memorandums, Prospectuses, Registration Statements and more

What Securities Services Can Easler Law Provide?

Easler Law can assist in drafting the necessary documents, managing subscribers, and complying with reporting obligations.

Here are a few of the types of services we can offer in securities and finance:

 

What are Offering Documents?

When a business is attempting to raise capital, it may engage in a funding or investment round (think initial public offering (IPO) or seed, venture, or angel round). This is defined as a securities offering. 

A securities offering is subject to strict legal practices as set forth by the Securities Act of 1933, which requires that investors are privy to financial statements and other critical information concerning securities that are being sold. The principal disclosure documents that must be provided to potential investors are generally referred to as “offering documents.”

In a registered offering for publicly-traded issues, this is called a “prospectus”; for a private, unregistered offering, this is called an “offering memorandum.”

Drafting an offering document is a complex process that should never be taken lightly. The importance of meeting all of the obligations of the business and drawing up papers that adhere to legal guidelines cannot be overstated. That’s why it is vital to work with an attorney experienced in business law who can guide you through the process.

What is a Prospectus?

Any time that a corporation decides to issue stock to the general public, it is required to draft a prospectus before any purchase is made. The prospectus is legally-binding, outlining all pertinent details of the issuance and inviting the general public to purchase shares. In addition, the Federal Securities Act dictates that the prospectus must be filed with – and approved by – the Securities and Exchange Commission (SEC) prior to any significant stock issuance. 

The prospectus ensures that any potential investors are fully informed of any risks associated with the investment. It also shields the corporation from any claims that it was not forthcoming or did not comply with federal law. The document must include a number of details, including but not limited to:

  • Financial status
  • Corporate officers
  • Corporate obligations
  • Business history
  • How proceeds are used
  • Buyer risks
  • SEC Disclaimer 

Preliminary vs. Final Prospectus

There are traditionally two stages of the prospectus for a securities offering: the first is a preliminary prospectus and the second is a final prospectus. Because it can take a long time to finalize a complete prospectus, most companies will release a preliminary prospectus ahead of it to attract investors and evaluate their interest in purchasing stock.

While it includes most of the identical information that will be on the final prospectus, a preliminary prospectus will not outline the total number of shares that will ultimately be issued nor the price at which they will be issued. Part of the purpose of the preliminary document is to assess the market’s interest in the offering prior to the corporation putting the stock up for public sale.

You may have also heard of the preliminary prospectus referred to as a “red herring.” The red herring gets its nickname from the red-inked disclaimer on its front page that indicates it has been filed with the SEC but has not yet been approved for the securities offering, that information is not complete and may be changed, and the sale is not yet available.

Once the SEC has conducted a thorough review to ensure the information provided does not include any misrepresentations or violations of laws and regulation, and that all required details have been disclosed, the registration statement can become effective and the company will prepare the final prospectus including the number of shares to be sold and the price. 

What is an Offering Memorandum?

Sometimes referred to as a private placement memorandum (PPM), an offering memorandum is a document that must be drafted to present an unregistered securities offering when attracting investors. This is a legal document that must be carefully crafted to outline any terms and conditions associated with the investment opportunity.

Typically, the offering memorandum will be needed by a private equity firm that wants to expand its growth while avoiding the need to raise capital through taking on debt or going public. Other types of companies that may be required to have an offering memorandum drafted in order to raise capital may include private or venture capital firms, hedge funds, private placement issuers, exempt market dealers, and more. 

The offering memorandum is generally circulated among a select group of potential investors chosen by the corporation. This differs from the public offers of stock that are available to purchase by anyone who has the interest and available funds.

Like the prospectus described above, the memorandum is a legally-binding document that must adhere to SEC laws. It allows potential investors to fully understand the scope of the offer in terms of risks, ROI, operations and business structure. The document will generally include a number of details, including but not limited to:

  • The issuer of the securities
  • The securities offerings
  • Any transfer restrictions
  • Associated risks 
  • Voting rights
  • Management fees
  • Financial statements

Who Drafts an Offering Document?

Offering documents are long, complex, legally-binding, and subject to strict federal laws. They require coordination among numerous individuals and can vary greatly from one round of securities offering to the next. Offering documents are far too important to both the corporation and to potential investors to be approached as a DIY project.

You’ll want experienced counsel with a keen eye for details so that all of the necessary components are included and nothing is left to chance. Offering documents should build trust with prospective investors. They will only feel confident and secure in providing capital if the financial statements and businesses plans are in order and clear of any misrepresentation of the offer.

They should also be drafted in such a way that minimizes the corporation’s liability with the SEC. You’ll want to make sure that every ‘i’ is dotted and every ‘t’ is crossed. This will eliminate any delays in moving to the final stage of the offer and avert potential sanctions and penalties from the SEC.

Call Florida’s leading experts in business law when you’re ready to raise capital. Our team of experienced and competent attorneys will ensure that your offering documents are drafted correctly and efficiently, setting your corporation up for the greatest chance at success!

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