As a business owner, taking proper precautions to protect against liabilities or lawsuits is crucial, especially if you plan to bring investors into your ventures. As such, it’s important you work with professionals from multiple disciplines including a financial planner to create and review a document known as a prospectus. The following guide explains more about this to help you prepare for your next appointment.

What Is a Prospectus?

This term refers to a legal document that is created when a company wishes to sell investments or securities. It highlights any important information the buyer might need to know that would impact their decision on making an offer. It is a legal document that is mandated and required by the Securities Exchange Commission (SEC).

There are four main types of prospectuses. The first is a preliminary, which includes details of the business selling the investment, as well as their financial plan. The second is known as an abridged prospectus; essentially, it serves as an overview or summary of the document’s contents. The third type is known as a “shelf.” This type is very rare and only applies when the contents of the document have a “shelf-life” of one year or less. The final type is a deemed prospectus, which occurs when the company that’s selling the stocks gives numerous shares to an issuing house.

How Do Financial Planners Suggest Using These Documents?

How you use a prospectus depends on the role you play in the sale. If you’re the person attempting to make the sale, the prospectus is an excellent opportunity to showcase the attractiveness of your offer. You should use this opportunity to prove to potential investors why your stocks are worth the investment.    

If you’re on the purchasing end of the agreement, the prospectus is the perfect opportunity to consider if the investment is the right move for you. You should weigh the potential risks outlined in the document to determine whether you’re financially sound enough to take a chance on the potential gains.

It can benefit you to work with a trusted financial planner from Family Financial Partners. Headquartered in Lexington, KY, their team of financial advisors and investment planners has helped numerous clients during the prospectus creation process since 2005. Call (859) 219-1006 for an initial consultation or go online to learn how they can help you today. You can also visit feeforplan.com for more information about financial plans tailored to your unique stage of life.

The tax planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as tax advice. Please consult with your tax professional for guidance regarding tax-related matters.