A preliminary prospectus is a document that issuers disseminate to prospective investors during the waiting period in the initial public offering process (IPO) to describe their business operations and their offering. A preliminary prospectus may also be referred to as a “red herring.”
Sections 5 and 2(a)(3) of the Securities Act prohibit issuers from making written offers during the waiting period unless the written offer complies with Section 10. Section 10(b) permits issuers to draft and disseminate a preliminary prospectus prior to when the Securities and Exchange Commission (SEC) declares their registration statement effective. Issuers must still draft a final prospectus that satisfies Section 10(a) before selling their securities.
Rule 430 requires a preliminary prospectus to contain essentially all the information that a final prospectus contains. This includes information about the issuer’s business operations, management, strategies, risk factors, and ownership structure. The preliminary prospectus contains only an estimate price range of the offering price, whereas the final prospectus contains a final offering price.
[Last updated in January of 2022 by the Wex Definitions Team]