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What Is a Business Prospectus?

To some companies, a business prospectus is the same as a business plan.
Some companies use their annual report as a business prospectus.
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  • Written By: M. McGee
  • Edited By: Lauren Fritsky
  • Last Modified Date: 30 September 2014
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Technically, a business prospectus is a document produced by a business that outlines the securities they have available for purchase or trade. These documents are written for the US Securities Exchange Commission (SEC) to look over and approve before a securities sale may begin. In actual use, a business prospectus is also a document that details the financial situation and future goals of a company. While the first definition is a very specific legal document, the second definition has a very vague and broad meaning.

In the US, a business prospectus is written by a company to finalize its securities offerings. This document is often distributed to potential buyers as an alert to the upcoming sale, but its actual purpose is to notify the SEC of the sale. The SEC will look over the document and determine if the information is accurate and if the sale is allowed. If everything goes correctly, the SEC approves the sale and the securities hit the market. While this is the process in the US, the actual use of a business prospectus in other countries is generally very similar.

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The business prospectus contains the company’s upcoming securities offers, but it often has additional information as well. It is this other information that has slowly broadened the definition of the term and brought it into other areas of business. In addition to future offerings, readers will find information on the current financial situation of the business, information about important employees, notifications of any major layoffs, hires or firings and disclosure of any legal issues in which the company is involved.

All of this additional information is designed to allow prospective buyers to make an informed decision regarding buying into the business. When the buyers see the quarterly profits for the last year and the hiring of new employees, it shows that the company's stock is likely going up. Due to the regulations put on the document, it also shows bad aspects so the company as a whole may be represented.

With all of this additional information, the actual definition of what was and was not a prospectus became blurred. Some companies use their annual report as a business prospectus, which means it includes press information and development data. Others use the term to mean their business plan and the structure and organization of the business as a whole.

While any or all of these definitions may apply, there is one thing that needs to be present in a business prospectus. Every prospectus needs information relating to the public and private security offerings made by the company. This information is what makes the document a prospectus; all the rest is optional.

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