The U.S. Securities Act of 1933 requires that a registration statement be filed with the SEC before the offering. The sale of securities is prohibited before the registration statement is declared effective.
The registration statement is composed of two parts. The first part is the prospectus, which must be delivered to any person who has offered to buy the securities and which contains the information required to make an investment decision: a description of the company and its business, a description of the offered securities and the use to which the sale proceeds will be put, the risks involved in buying the securities, detailed financial information (the financial statements are also attached to the prospectus), and a description of the management and board of directors. The second part contains additional information such as expenses, director indemnification, and appendices which is not distributed with the prospectus but is available at the SEC's offices.
The registration statement has a twofold role: On the one hand, it is the sale document which presents the company to potential buyers of the securities, and on the other hand, it is a legal document designed to legally protect the company and its officers against claims resulting from omissions or misstatements of material information about the company. Naturally, these two objectives contrast with one another, and a balance is required between the presentation of the company and its future in a manner which will ensure that the securities are sold, and the need to disclose all of the risks involved in their acquisition.
There are several types of registration statements. The document used in the IPO of a U.S. company is Form S-1, and Form F-1 is used in the IPO of a foreign company (see the section on changes in the registration process for a discussion of a proposal to replace the registration forms).
The duties of disclosure in prospectuses in the United States, as well as in other countries, are designed to achieve three main objectives: protecting investors against fraud, maximizing the market's efficiency, and ensuring the existence of a fair market for securities trade. These objectives are achieved by requiring the disclosure of all the material information needed by investors to make investment decisions (proper and complete disclosure), rather than by stating the economic value of the securities (the assumption being that when the information is readily available, the market will determine the economic value of the securities). In the past, the manner of implementation of the disclosure requirements differed from one country to another, but nowadays there is a trend to make the disclosure rules uniform in all of the main markets (see the section on disclosure under international disclosure rules). It is also important to remember that the scope of the disclosures made in the prospectus is not dictated only by statutory requirements, but also by international standards and investors' expectations.
The Disclosure Particulars
The details requiring disclosure in the prospectus are fixed in the rules (regulations) promulgated under the Securities Act of 1933 (Regulation S-K for domestic companies, Form F1 for foreign companies). In addition, there is a general prohibition on the inclusion of a misleading detail in the prospectus or on the omission of material information, but there is no sweeping requirement to disclose all the information which is material to investors. The required disclosure may be divided into four parts: