What is a preliminary prospectus?

In the widest sense, the preliminary prospectus is a document to be the first proposal of a document that contains the provisions for changes later. The main function of this type of document is to provide basic information relevant to the upcoming business transaction, including data concerning the company that carries out the transaction, as organized, who is in charge, and how the Company assumes the proposed action. At the same time, the preliminary nature of the document leaves the door open to improve the data included when and as needed.

Sometimes it is referred to as a preliminary statement, one of the most common uses of preliminary prospectus is related to the creation of an initial public offer. In this scenario, the company creates a statement on plans to make such an offer and submits it with the relevant government agency or commission. Government regulations dictate the type of information that the information must be included in this preliminary statement, but most nations would require the background of history, ProENDS structures and financial stability of the company. The text must be included in the format to show that parts of the document can be changed later.

For example, a company operating in the United States would present a preliminary prospectus by a pre -commission for securities for review before making any type of public offer. Since the Commission traditionally requires a red ink to be used for parts of the text, this type of prospectus is nicknamed the "Red Call". The nickname was used to identify everything that is not in its final form and can still change.

It is also common for a preliminary prospectus to contain information on how the activity will be done. In the case of an initial public offer, this will include details of how many shares will be offered, the initial public bid price and how the company will manage the share distribution when selling. MThe classification of this type of detail is to find out whether the initiative has been well planned and it seems to be in line with the current regulations.

While the preliminary prospectus leaves an open possibility of adding or changing the document later, most companies will try the document as close as possible to the final proposal. For this reason, the preliminary prospectus can also be a very detailed document that makes the issuer's intentions very obvious, and also structures the strategy that will be used to achieve the desired goal. If the prospectus does not contain what the regulatory agency is considering basic data, the prospectus is rejected and the Be has to change and sent before the offer can move forward.