A business prospectus is a document that describes a stock offering, mutual fund or potential financial venture, or it can outline the operations of a going concern. These prospectuses help attract potential investors or allow potential partners or purchasers of a business to understand the workings and risks of involvement in a specific venture.
Some business prospectuses relate to investment opportunities in the form of stock in a particular company. This helps potential investors learn about the business and its risks and opportunities. Before purchasing stock in a company, investors often want to know as much as they can about the business. Prospectus information includes data about the company’s earnings, assets, liabilities, products, services and management team. Companies that are planning to offer stock for the first time in an initial public offering, or IPO, prepare and distribute preliminary and final prospectuses. Publicly traded companies wanting to sell more stock create prospectuses in addition to providing annual reports.
Mutual Fund Prospectus
A mutual fund prospectus includes information about the fund’s offer, fees, past performance, managers, risks, terms and goals or investing strategy. Like a stock prospectus, a mutual fund prospectus is a document that must meet U.S. Securities and Exchange Commission requirements. The SEC requires a statutory prospectus, which is a very detailed document, and a summary prospectus, which provides highlights.
Some prospectuses describe a potential business that an entrepreneur or group will launch if it can find funding. The prospectus often contains data from the proposed business’s marketplace but will rely on projections for startup and operating costs, sales, revenues and profits. The prospectus describes the product or service, provides biographies of key stakeholders, estimates income and expenses, gives a marketplace overview and provides a SWOT analysis -- a description of the venture’s strengths, weaknesses, opportunities and threats. Unlike a business plan, a prospectus is shorter and less detailed and does not include information on how the business will be run.
A prospectus for an existing business shows how a business has operated and is operating and its potential as an investment. The business might be seeking a silent partner, a co-owner or someone to buy the business outright. This type of prospectus contains information about the company’s product or service and its history, competitors, essential staff members, financial performance and projections for future performance. The prospectus might be seeking money to expand the business, open new locations, upgrade machinery or increase distribution capabilities.
Stock and mutual fund prospectuses must meet SEC requirements. Companies planning an IPO of stock provide preliminary and final prospectuses, depending on the stage of their offering. If you review a business prospectus for a potential or existing business, look for disclaimers and legal statements that attest to the accuracy of the information and a statement that the preparer of the prospectus has disclosed all material information, such as pending lawsuits, legal judgments, liens, past fines and potential risks.
- U.S. Securities and Exchange Commission: Mutual Fund Prospectus
- Investor Guide: Prospectuses, Annual Reports, and Other Documents
- U.S. Securities and Exchange Commission. "Registration Under the Securities Act of 1933." Accessed Nov. 4, 2020.
- U.S. Securities and Exchange Commission. "Investor Bulletin: Investing in an IPO." Accessed Nov. 4, 2020.
- U.S. Securities and Exchange Commission. "Information Available to Investment Company Shareholders." Accessed Nov. 4, 2020.
Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.