SEC Prospectus Rules

The Securities Act of 1933 first required public companies to disclose particular information to investors. The Securities Exchange Act of 1934 created the U.S. Securities and Exchange Commission and authorized the agency to oversee and regulate the securities industry within the nation. The Trust Indenture Act of 1939 extended SEC authority on prospectus contents to bonds and notes. Following this in 1940, the Investment Company Act regulated investment companies, such as mutual funds. All these laws and amendments contain rules for prospectus content and delivery.

Offer Document

The SEC requires companies offering securities for sale in the United States to register. As part of this initial registration process, they must file a prospectus. Shortly after the initial registration, these documents are made available to the public. A prospectus may be referred to as an "offer document," especially in reference to bonds and stock offerings. The preliminary prospectus filed with the initial registration may not contain price information or the total amount of securities to be issued. After the registration statements are finalized, a new complete prospectus is available to investors with full details on the investment.

Delivery Format

Paragraph 10 of Section A in the Securities Act of 1933 defines a prospectus as not only a formal written offering, but also any circular, advertisement or letter that offers a security for sale. This definition also applies to a notice or advertisement broadcast via radio or television. The SEC regulates what information must be contained in the prospectus and the law clearly states that a prospectus cannot be offered to potential investors unless the registration statement has been filed.

Contents

The prospectus provides a snapshot of the company's business and details about its financial condition. In the case of stocks, the number of shares issued along with the price is included in the prospectus. A prospectus filed for a bond issue details how the capital will be used and provides an assessment of the associated risk to investors. SEC rules also require that information contained in the prospectus be up-to-date.

Mutual Funds

Mutual fund prospectuses must conform to specific rules regulated by the SEC. A mutual fund prospectus relates to investors the objectives and strategies, risks and performance of the fund. Details on all costs, such as management fees and expenses, and who manages the fund are included in the prospectus. Rules that went into effect in 2009 require the mutual fund to provide a summary at the beginning of the prospectus detailing this information. The 2009 amendments also state that this pertinent information need not be repeated elsewhere in the document.

About the Author

Vicki A Benge began writing professionally in 1984 as a newspaper reporter. A small-business owner since 1999, Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Her business and finance articles can be found on the websites of "The Arizona Republic," "Houston Chronicle," The Motley Fool, "San Francisco Chronicle," and Zacks, among others.

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