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What should a prospectus include?
A well designed prospectus ideally would be similar to a well crafted brochure, providing readable information, but WITHOUT ANY HYPE. Unfortunately, most prospectuses are dull, boring, long documents with all the excitement of the telephone directory, because any omissions can place you in severe jeopardy.
Companies must clearly describe any risks prominently in the prospectus, often at the very beginning. Risks that must be disclosed – often at length -- include any lack of business operating history, any past problems with the company or members of its management, any adverse economic conditions in the company’s particular industry, the company’s competitive disadvantages, the regulatory structure and dangers in the event of non-compliance, any lack of a market for the securities offered, and the lack of assurance that there will be a market, the "dilution" between the price the new shareholders are paying and the low price the insiders bought their shares at, and dependence upon key personnel. In short, some prospectuses appear to be a combination prospectus
The company also must describe in the prospectus its business, its properties, its competition, its officers and directors and their compensation, transactions between the company and its officers and directors, legal proceedings involving the company or its officers and directors, the plan for distributing the securities; and the intended use of the proceeds of the offering. You also need to include financial statements audited by an independent certified public accountant. |
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