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What is a Corporate Prospectus?

What is a Corporate Prospectus?

Want to know what a corporate prospectus is? What information is required to be disclosed and why? Read more to find out.

6th September 2019

When corporations want to offer shares to the public and conduct an initial public offering, they must disclose certain things. This is so that an investor may make a more informed decision. As a general rule, a corporation needs to provide a disclosure document known as a corporate prospectus to potential investors.

What is it?

ASIC requires corporations to submit a legal disclosure document known as corporate prospectus. When preparing a prospectus, issuers must word and present it in a clear and concise manner and ensure that it is not misleading or deceptive. The informations required in a prospectus is provided by the Corporations Act 2001 (NSW).

What needs to be in it?

Generally, a corporate prospectus must contain all the information needed for investors to make an informed assessment about:

  • The rights and liabilities attaching to the shares offered;
  • The assets and liabilities of the corporation;
  • Financial position and performance;
  • Profits and losses;
  • Prospects of the share issue.

(1) Investment Overview

The investment overview is essentially the summarized version of the categories mentioned below. It includes general information such as who the corporation is, the industry the corporation participates in, and why the offer is being conducted is included.

(2) Corporation Overview

A prospectus provides an overview of the corporation since its creation. This includes a chronological corporation history outlining its major achievements. Furthermore, it also includes the corporation’s products and services, the summary of its operations, the corporation’s customer base, competitors, and growth strategy. Essentially, it provides a summarized version of a corporation’s business model and how it generates revenue. This informs investors so as to what the corporation is about and its values and long-term goals.

(3) Industry Overview

This section provides the industry overview of the corporation. It includes key data and information on the competitive landscape of the industry. This includes the industry’s compounded average growth rate (CAGR) and the market share of the corporation relative to the industry size. This informs investors of the industry and corporation’s prospects in the future and allows investors to forecast whether the corporation will be profitable in the future or not.

(4) Financial Information

This section includes financial information on the corporation. It includes both historical and forecasted income statements, cash flow statements, and balance sheets. It also provides key financial metrics such as the corporation’s earnings before interest, tax, depreciation and amortization (EBITDA), working capital, profit margin, and operating expenses. This allows the investors to assess the corporation’s financial health and whether, after taking into consideration the risks, it is worth investing in the corporation. This is considered to be one of the most important part of information a corporation provides. As a result, it is the information most under scrutiny and subject to tight regulations. These regulations prevent the companies from providing misleading and deceptive financial information.

(5) Risks

This section outlines the key risks for the corporation. It does so by identifying a number of potential risks associated with the corporation and the industry in which it operates in. This will inform investors whether it is worth the risk to invest in the corporation. Furthermore, it will also inform the investor as to the volatility of the industry.

(6) Key People, Interests and Benefits

This section shows the key people of the corporation and their interests and benefits. This includes listing the directors of the corporation, key non-executive management members, shareholder composition, and the remuneration details of the executives. This will inform investors as to who is running and guiding the corporation and the rationale behind the decisions they make.

(7) Details of the Offer

All of the previous section ties in to this one as the purpose of informing the investors is to induce them into being interested in the details of the offer. The details of the offer include the description of the offer, the purpose and proposed use of funds, and the terms and conditions of the offer. It essentially outlines the overall process of the offer.

Conclusion

To conclude, a corporate prospectus is aimed to provide the requisite information for investors to make a reasonable and informed decision. As a result of the sensitivity and impact a share offering has, a prospectus is subject to tight regulatory measures. To learn more on what is required in issuing a prospectus, you can visit ASIC online or consult with a business lawyer.

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Author
Ryan Tjahjono

Ryan currently works in the content team as a Legal Intern for Lawpath. He is in his third year of a Bachelor of Law and Business degree at UTS.