Prospectus Requirements and Shelf Registration
With the registration periods established, you can now dig into the details of the prospectus itself: what it must contain, when it must be updated, and how shelf registration allows issuers to sell securities over time.
Prospectus Content
The prospectus is Part I of the registration statement and must include:
- Description of the issuer's business
- Audited financial statements
- Use of proceeds from the offering
- Risk factors
- Management information
- Underwriting arrangements and spread
Exam Tip: Gotchas
Risk factors and use of proceeds are mandatory disclosures. The exam may describe a prospectus that omits either; that is a deficiency.
Key Securities and Exchange Commission (SEC) Rules Governing Prospectuses
| Rule | Purpose |
|---|---|
| Rule 430 | Permits a preliminary prospectus to be used before the effective date (omits price and spread) |
| Rule 430A | Permits a final prospectus to omit certain pricing-related information at effectiveness if filed within specified time frames afterward |
| Rule 430B | Allows well-known seasoned issuers (WKSIs) to omit information in base prospectuses for shelf registrations, filled in via prospectus supplements |
| Rule 427 | After 9 months from the effective date, a prospectus must be updated with more recent financial information |
Exam Tip: Gotchas
The 9-month rule (Rule 427) is a testable threshold. If a prospectus is still being used 9 months after the effective date, it must be refreshed with current financials.
Shelf Registration (SEC Rule 415)
Shelf registration allows an issuer to register a large amount of securities and then sell portions over time: up to 3 years for well-known seasoned issuers.
- Used for delayed or continuous offerings
- Common for follow-on offerings by established companies
- Prospectus supplements are filed to update pricing and terms for each "takedown" from the shelf
- Gives issuers flexibility to time their offerings based on market conditions
How it works:
- Issuer files a registration statement covering the total amount of securities
- SEC declares the registration effective
- Issuer sells portions ("takedowns") over time as needed
- Each takedown is accompanied by a prospectus supplement with updated pricing and terms
Exam Tip: Gotchas
Shelf registration lasts up to 3 years for WKSIs. Each takedown requires a prospectus supplement, not a new registration statement.
Free Writing Prospectus (SEC Rule 433)
A free writing prospectus is any written communication (other than the statutory prospectus) that constitutes an offer to sell securities.
- Must be filed with the SEC
- For initial public offering (IPO) issuers: must be accompanied or preceded by the most recent preliminary prospectus
- For seasoned issuers and WKSIs: fewer restrictions apply
- Examples include emails, websites, brochures, or media appearances that discuss the offering
Exam Tip: Gotchas
A free writing prospectus must be filed with the SEC. For IPO issuers, it must be accompanied or preceded by the most recent preliminary prospectus.