Prospectus

Section 10(a) of the Securities Act specifies the contents a statutory prospectus must contain. It must include all information in the registration statement except those items specifically excluded by SEC rule — the only significant permitted omission is the final public offering price and related information, which Securities Act Rule 430A allows to be omitted from the registration statement when it is declared effective and added to the final prospectus after pricing.

Section 11 of the Act imposes civil liability for any material misstatement or omission in the registration statement of which the prospectus forms a part. The persons who may be liable include the issuer, every person who signed the registration statement (including its principal executive, financial, and accounting officers), every director of the issuer, every expert who is named, with consent, as having prepared or certified part of the registration statement, and every underwriter. Section 12(a)(2) separately imposes civil liability on any person who offers or sells a security by means of a prospectus that contains a material misstatement.

Wilful violations of the prospectus delivery requirements carry criminal penalties under Section 24 of the Act of up to five years imprisonment and fines up to ten thousand dollars per violation.

The Three Forms of Prospectus

Three distinct forms of prospectus appear at different stages of the offering process and are directly tested on securities licensing examinations.

The Preliminary Prospectus — The Red Herring

The preliminary prospectus — universally called the red herring — is the first version of the prospectus distributed to potential investors. It is used during the cooling off period after the registration statement has been filed with the SEC but before it has been declared effective. The preliminary prospectus is permitted by Section 10(b) of the Securities Act and must comply with Securities Act Rule 430, which requires it to contain essentially all of the information that the final prospectus will contain.

The name red herring derives from the bold red disclaimer printed on the cover page stating that the registration statement has not yet become effective and that the securities described may not be sold — and no offer to buy can be accepted — until the registration becomes effective. This cover legend is mandated by the SEC as a warning to readers that the document is preliminary and that no binding sales are possible during the waiting period.

The preliminary prospectus may omit information that depends on the offering price and cannot be determined until the offering is priced — principally the final public offering price and the underwriting discounts and commissions. Under Rules 430 and 430A, this price-dependent information may be omitted and added to the final prospectus after the pricing decision is made. All other material information about the issuer — its business history, risk factors, financial statements, use of proceeds, management compensation, and the terms of the securities — must appear in the preliminary prospectus.

Distribution of the red herring during the cooling off period enables underwriters to gauge investor interest, build the book of orders during the roadshow, and establish the public offering price that clears the market before the effective date. Receipt of the preliminary prospectus does not commit the investor to purchase — it is an informational document, not a confirmation of sale.

The Final Prospectus — The Statutory Prospectus

The final prospectus is the completed statutory prospectus issued on or after the effective date of the registration statement. It contains all of the information in the preliminary prospectus plus the final public offering price, the underwriting discounts and commissions, the net proceeds to the issuer, and the settlement date. The final prospectus is filed with the SEC under Rule 424(b) within two business days after pricing.

Every buyer of a registered security must receive the final prospectus. The method of satisfying this delivery requirement was substantially modernised by the SEC's access equals delivery rule — codified in Securities Act Rule 172 — under which the obligation to deliver a final prospectus is satisfied in most registered offerings when the registration statement is effective and not subject to certain pending SEC proceedings, and the issuer has filed the final prospectus with the SEC, or will make a good faith and reasonable effort to file it within the time Rule 424 requires, so that it becomes publicly available on EDGAR, the SEC's Electronic Data Gathering, Analysis and Retrieval system. This eliminates the operational burden of physically mailing prospectuses to every purchaser. Under Rule 173, however, underwriters and dealers who sell in such a transaction must still send each purchaser, no later than two business days after the sale is completed, either a copy of the final prospectus or a notice stating that the sale was made pursuant to a registration statement, and a purchaser may request a copy of the final prospectus. Rule 172 does not apply to every offering — it excludes, among others, business combination transactions, Form S-8 offerings, and offerings by registered investment companies other than closed-end funds.

The final prospectus must be delivered in its original, unaltered form. Broker-dealers may not highlight, summarise, annotate, or modify the prospectus in any way — doing so would violate the prospectus delivery requirements and potentially constitute fraud by presenting investors with a modified version of the required disclosure document.

The Free Writing Prospectus

A free writing prospectus is any written communication — including electronic communications, roadshow materials, and other marketing documents — that constitutes an offer to sell securities in connection with a registered offering, used after the registration statement has been filed. It is defined in Securities Act Rule 405 and governed by Rule 433.

The free writing prospectus allows issuers and underwriters to communicate information about the offering beyond what the statutory preliminary prospectus contains — including updated information, responses to investor questions during the roadshow, and supplementary financial or business information — provided the information in the free writing prospectus does not conflict with the information in the registration statement. An issuer free writing prospectus generally must be filed with the SEC no later than the date of its first use, subject to exceptions such as certain written road shows, and every free writing prospectus must carry a legend directing investors to the filed registration statement and prospectus where they can find the full required disclosure.

Offering Communications — The Quiet Period, Waiting Period, and Effectiveness

The Securities Act divides a registered offering into three periods, and what an issuer, an underwriter, or a broker-dealer may say about the securities depends on which period the offering is in. The prospectus is the document through which a registered offer is made. Other communications are either prohibited, limited to a narrow safe harbor, or permitted only in the form of a free writing prospectus.

The Pre-Filing Period — The Quiet Period

From the time an issuer decides to go public until it files the registration statement with the SEC, Section 5(c) of the Securities Act prohibits any offer of the securities, whether oral or written. This is the quiet period. The issuer and its underwriters may negotiate with each other, but they may not solicit investor interest or publicise the offering in a way that conditions the market for the securities — conduct commonly called gun-jumping. A violation of Section 5 also gives purchasers a right of rescission under Section 12(a)(1), described below.

Several rules let an issuer keep communicating in the ordinary course of business, or give limited notice of an offering, without violating Section 5(c). Rule 163A exempts certain issuer communications made more than 30 days before the registration statement is filed, provided the communication does not reference the securities offering and the issuer takes reasonable steps within its control to prevent further distribution or publication of it during the 30 days before filing. Rule 168 allows an issuer that files reports under the Securities Exchange Act of 1934 to continue releasing the regularly released factual business information and forward-looking information it normally releases, such as earnings announcements, without that release being treated as an offer, provided the timing, manner, and form are consistent with its past practice and the communication does not discuss the offering. Rule 169 provides a narrower safe harbor for regularly released factual business information intended for customers, suppliers, and others who are not receiving it as investors; it does not cover forward-looking information. 

Rule 135 allows an issuer to publish a brief notice of a proposed registered offering — limited to items such as the issuer's name, the title, amount, and basic terms of the securities, the anticipated timing, and a brief statement of the manner and purpose of the offering without naming the underwriters — as long as the notice states that it does not constitute an offer. A well-known seasoned issuer, discussed below under shelf registration, receives broader relief under Rule 163, which exempts certain pre-filing offers from Section 5(c) subject to conditions.

The Waiting Period — The Cooling Off Period

Once the registration statement is filed, the offering enters the waiting period, also called the cooling off period. Section 5(a) continues to prohibit sales, so no binding sale may be made. What changes is that offers are now permitted: oral offers may be made, and written offers may be made only through a preliminary prospectus that satisfies Section 10, through a free writing prospectus that complies with Rule 164 and Rule 433, or through a communication that fits a limited safe harbor such as Rule 134. Underwriters and dealers use this period to gather indications of interest, which are not binding on either side.

A tombstone advertisement under Rule 134 is a communication limited to specified basic information — such as the issuer's name and business, the title and amount of the security, its price or the method for determining it, the underwriters, and the offering schedule — that is deemed not to be a prospectus or a free writing prospectus when the rule's conditions are met and a registration statement containing a Section 10 prospectus has been filed. 

Before the registration statement is effective, the communication must state that a registration statement relating to the securities has been filed but has not yet become effective, and it must identify where a written prospectus may be obtained. If the communication solicits offers, it must also state that no offer to buy can be accepted and no part of the purchase price can be received until the registration statement has become effective, subject to an exception for dealer communications.

The Effective Date and the Period After It

Section 8(a) of the Securities Act provides that a registration statement becomes effective on the twentieth day after it is filed, or on an earlier date that the SEC determines. In practice, effectiveness usually follows an issuer's request that the SEC accelerate the effective date once the staff has completed its review, a request governed by Rule 461. Once the registration statement is effective, sales may be made and confirmed. Written offers remain limited to a Section 10 prospectus or a compliant free writing prospectus, and the final prospectus is the document that must be delivered to purchasers.

A violation of these rules — an offer before filing, a sale before effectiveness, or the use of a written offer that does not comply — is a Section 5 violation. Section 12(a)(1) gives the purchaser a right to rescind: the purchaser may recover the consideration paid, with interest, less any income received, on tender of the security, or may recover damages if the purchaser no longer owns it. Liability under Section 12(a)(1) does not depend on any misstatement in the offering documents.

Contents of the Prospectus — What Must Be Disclosed

The SEC's registration form requirements — principally Form S-1 for domestic issuers conducting initial public offerings — specify the contents of the registration statement and by extension the prospectus. The required disclosures fall into several major categories.

The business description covers the issuer's history, products and services, competitive position, customers, suppliers, regulatory environment, and properties. Risk factors — a section that has grown in prominence since the SEC began requiring them expressly — describe the material risks facing the issuer and its securities, presented in plain English under the SEC's Plain English rule adopted in 1998 and codified in Securities Act Rule 421(d).

Management's Discussion and Analysis of financial condition and results of operations — required under Regulation S-K Item 303 — provides management's explanation of the financial statements, discussing known trends, commitments, and uncertainties that will affect future results. This section gives investors management's perspective on the numbers and is frequently the most analytically valuable portion of the prospectus for investors evaluating the offering.

The financial statements must be prepared in accordance with GAAP, audited, and comply with Regulation S-X governing the form and content of SEC-filed financial statements. Domestic issuers include two to three years of audited income statements and cash flow statements and two years of audited balance sheets. Foreign private issuers may file on Form F-1 using financial statements prepared under International Financial Reporting Standards as issued by the International Accounting Standards Board.

The use of proceeds discloses specifically how the issuer intends to deploy the capital raised in the offering — debt repayment, capital expenditure, working capital, acquisitions, or general corporate purposes. Capitalization tables show the issuer's equity structure before and after the offering. Directors and officers are identified with their compensation disclosed under Regulation S-K Item 402.

What Registration Does Not Mean — The SEC Legend

Registration with the SEC is a disclosure process, not an endorsement. The SEC reviews registration statements for compliance with disclosure requirements, but it does not pass on the merits of the securities and does not guarantee that the information in the prospectus is accurate. Section 23 of the Securities Act provides that the filing or effectiveness of a registration statement is not a finding by the SEC that the registration statement is true and accurate, and that it does not mean the SEC has passed upon the merits of or approved the security. The same section makes it unlawful to make any representation to a prospective purchaser that is contrary to that rule.

Regulation S-K Item 501(b)(7) requires the outside front cover page of the prospectus to carry a statement that neither the SEC nor any state securities commission has approved or disapproved of the securities or determined whether the prospectus is truthful or complete, and that any representation to the contrary is a criminal offense. A registered representative who tells a customer that an offering is SEC approved is making a misrepresentation that conflicts with this requirement and with Section 23.

Shelf Registration and Prospectus Supplements

A traditional registration covers a single offering of a fixed amount of securities sold at one time. Rule 415 allows an issuer to register securities for a delayed or continuous offering — a shelf registration — so that the issuer registers the securities once and sells them later in one or more takedowns as market conditions permit. The base prospectus in the shelf registration statement describes the issuer and the securities in general terms. The specific terms of each takedown, such as the price, interest rate, and maturity of a debt issue, are provided later in a prospectus supplement filed with the SEC under Rule 424(b), and the supplement together with the base prospectus makes up the prospectus used for that takedown.

The SEC gives the largest and most seasoned issuers the most flexibility. A well-known seasoned issuer, or WKSI, is defined in Rule 405 as an issuer that meets the registrant requirements of Form S-3, Form F-3, or Form N-2, is not an ineligible issuer, and either has a worldwide market value of outstanding voting and non-voting common equity held by non-affiliates of $700 million or more, or, for a registration of non-convertible securities other than common equity, has issued at least $1 billion aggregate principal amount of such securities in registered primary offerings for cash during the last three years. A WKSI may file an automatic shelf registration statement, which becomes effective upon filing under Rule 462(e) without waiting for SEC review.

A shelf registration does not last indefinitely. Under Rule 415(a)(5), securities registered on an automatic shelf registration statement may be offered and sold only if no more than three years have passed since its initial effective date, although the issuer may file a new registration statement before the three years expire so that it can continue offering securities.

When a Prospectus Becomes Stale

A prospectus cannot be used indefinitely without being updated. Section 10(a)(3) of the Securities Act provides that when a prospectus is used more than nine months after the effective date of the registration statement, the information in it generally must be as of a date not more than sixteen months before its use. A prospectus used after that point must be updated so that its information meets that standard.

Prospectus Delivery in the Aftermarket — Post-IPO Requirements

Prospectus delivery obligations can extend beyond the initial sale into the secondary market for a defined period after an offering. Under Section 4(a)(3) of the Securities Act and Securities Act Rule 174, dealers — including broker-dealers that did not participate in the offering — must deliver a prospectus to customers for secondary market transactions during that period. For an IPO by a company that was not previously subject to SEC reporting requirements, the period is twenty-five calendar days after the offering date if the security is listed on a national securities exchange or quoted on an automated quotation system, and ninety days otherwise. Other periods apply to other types of offerings under Section 4(a)(3) and Rule 174.

This aftermarket delivery obligation reflects the legislative judgment that the first secondary market purchasers of a newly issued security deserve the same informational protection as the initial primary market buyers, because in the early trading days after an IPO the only source of material information about the company is the prospectus — no research reports, earnings history, or established analyst coverage exists yet.

Civil Liability — Sections 11 and 12 in Detail

The liability provisions described earlier differ in who can be sued, what the plaintiff must prove, what defences are available, and how long a claimant has to bring suit.

Section 11 — Liability for the Registration Statement

Under Section 11(a), a person who acquired a security may sue if the registration statement, when it became effective, contained an untrue statement of a material fact or omitted a material fact required to be stated or necessary to make the statements not misleading. The plaintiff does not have to prove that the defendant intended to deceive, and does not have to show that the plaintiff relied on the misstatement or read the registration statement. The exception applies when the plaintiff acquired the security after the issuer made generally available an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement. In that case the plaintiff must prove reliance on the misstatement, although the plaintiff need not prove having read the registration statement.

The issuer's liability for a material misstatement in the registration statement is effectively absolute — the issuer has no due diligence defence. Every other defendant may raise one. A defendant other than the issuer is not liable for the part of the registration statement that was not made on the authority of an expert if the defendant proves that, after reasonable investigation, the defendant had reasonable ground to believe, and did believe, that the statements were true and that no material fact was omitted. For a part made on the authority of an expert, such as audited financial statements, a defendant who is not the expert has a lighter burden: the defendant must show only that the defendant had no reasonable ground to believe, and did not believe, that the statements were untrue or that a material fact was omitted. An expert is liable only for the portion of the registration statement that the expert prepared or certified, and must show a reasonable investigation of that portion. This difference is why underwriters conduct a thorough investigation of the issuer before an offering.

Damages under Section 11(e) are generally the difference between the amount the plaintiff paid for the security, not exceeding the public offering price, and the value of the security at the time of suit, the price at which the plaintiff sold it before suit, or, if the plaintiff sold it after suit but before judgment, the price received if that produces smaller damages. A defendant can reduce the damages by proving that some or all of the decline in value resulted from something other than the misstatement. An underwriter's liability is generally limited to the total offering price of the securities that it underwrote.

Section 12(a)(2) — Liability for the Prospectus and Oral Communications

Section 12(a)(2) applies to any person who offers or sells a security by means of a prospectus or an oral communication that includes an untrue statement of a material fact or omits a material fact necessary to make the statements not misleading. The defendant is the seller, which under Supreme Court precedent includes a person who solicits the purchase to serve the person's own financial interest or that of the security's owner (Pinter v. Dahl, 1988). The purchaser may recover the consideration paid, with interest, less any income received, on tender of the security, or may recover damages if the purchaser no longer owns it. The defendant avoids liability by proving that the defendant did not know, and in the exercise of reasonable care could not have known, of the untruth or omission.

In Gustafson v. Alloyd Co. (1995), the Supreme Court held that the term prospectus in Section 12 refers to a document describing a public offering by an issuer or a controlling shareholder. As a result, Section 12(a)(2) does not apply to a private sale of securities.

Time Limits

Section 13 of the Securities Act limits the time in which a claim may be brought. A claim under Section 11 or Section 12(a)(2) must be brought within one year after the plaintiff discovered, or with reasonable diligence should have discovered, the untrue statement or omission, and in no event more than three years after the security was bona fide offered to the public (Section 11) or after the sale (Section 12(a)(2)). A claim under Section 12(a)(1) must be brought within one year after the violation and in no event more than three years after the security was bona fide offered to the public.

Offerings Without a Registered Prospectus — Exempt Offerings and Testing the Waters

Not every securities offering is registered. The Securities Act exempts certain securities and certain transactions from registration, and an exempt offering generally does not involve a statutory prospectus. Exempt does not mean unregulated — the antifraud provisions apply to every offer and sale of securities, whether registered or exempt.

Issuers in a private offering typically give prospective purchasers an offering memorandum, a disclosure document describing the issuer, the securities, the terms of the offering, and the risks. It is not a statutory prospectus and is not reviewed by the SEC, but it is a communication made in connection with the offer and sale of securities, so a material misstatement or omission in it can create liability under SEC Rule 10b-5 and Section 17(a) of the Securities Act. Rule 10b-5, adopted under Section 10(b) of the Securities Exchange Act, prohibits any device to defraud, any untrue statement or omission of a material fact, and any act that operates as a fraud in connection with the purchase or sale of any security. Unlike a claim under Section 11, a private claim under Rule 10b-5 requires the plaintiff to prove that the defendant acted with scienter.

Regulation D contains the most widely used private-offering exemptions. Under Rule 506(b), an issuer may raise an unlimited amount of money from an unlimited number of accredited investors and from no more than 35 non-accredited investors, each of whom, alone or with a purchaser representative, must have enough knowledge and experience in financial and business matters to evaluate the merits and risks of the investment. 

An issuer relying on Rule 506(b) may not use general solicitation or general advertising, and it must give any non-accredited purchasers the disclosure that Regulation D specifies. Rule 506(c) permits general solicitation if every purchaser is an accredited investor and the issuer takes reasonable steps to verify that status. Rule 504 allows smaller offerings of up to $10 million in a twelve-month period, subject to eligibility limits. 

An issuer relying on Regulation D must file a notice on Form D with the SEC within 15 days after the first sale of securities in the offering. Securities purchased in a Regulation D offering are restricted securities, which the purchaser generally cannot resell without registration or an exemption such as Rule 144.

Regulation A is an exemption that permits public offerings up to specified dollar limits, using an offering statement on Form 1-A that the SEC must qualify before sales can be made. Tier 1 allows offerings of up to $20 million in a twelve-month period, and Tier 2 allows up to $75 million. Tier 2 requires audited financial statements. 

A Tier 2 issuer that is not listed on a national securities exchange limits a non-accredited investor who is a natural person to investing no more than 10 percent of the greater of the investor's annual income or net worth. Tier 1 offerings must also be registered or qualified with the states in which they are sold, while Tier 2 securities are covered securities, discussed below.

Rule 144A provides a safe harbor for resales of restricted securities to qualified institutional buyers. Generally, an institution is a qualified institutional buyer if it owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers, and a registered broker-dealer qualifies if it owns and invests on a discretionary basis at least $10 million. Issuers commonly sell securities in a private transaction to underwriters acting as initial purchasers, who resell them to qualified institutional buyers under Rule 144A using an offering memorandum.

Testing the Waters

Testing-the-waters rules allow an issuer to gauge investor interest before committing to a registered offering. Section 5(d) of the Securities Act, added by the JOBS Act in 2012, permits an emerging growth company, before or after filing a registration statement, to communicate orally or in writing with potential investors that are qualified institutional buyers or institutional accredited investors to determine their interest. Rule 163B extends the same ability to every issuer. These communications remain subject to the antifraud provisions of the securities laws.

State Securities Laws and the Prospectus

Securities offerings are regulated by the states as well as the federal government. State securities laws are commonly called blue sky laws, and many states have adopted some version of the Uniform Securities Act. Before 1996, a public offering registered with the SEC generally also had to be registered or qualified in each state in which it was sold. Section 18 of the Securities Act, added by the National Securities Markets Improvement Act of 1996, preempts state registration and qualification requirements for covered securities. Covered securities include securities listed on a national securities exchange, securities issued by registered investment companies, and securities sold in Rule 506 offerings and Tier 2 Regulation A offerings.

States nonetheless keep their authority to enforce their antifraud laws against covered securities, and they may generally require notice filings and fees. A federal registration therefore does not prevent a state regulator from acting against a misleading prospectus.

The Mutual Fund Prospectus — A Separate Framework

The prospectus requirement of the Securities Act of 1933 applies not only to corporate stock and bond offerings but to shares of registered investment companies — mutual funds — offered continuously to the public.

Every mutual fund registered under the Investment Company Act of 1940 must file its registration statement and prospectus on Form N-1A and deliver a current prospectus to every investor before or at the time of sale under Securities Act Section 5(b).

The SEC's 2009 summary prospectus rule — permitting mutual funds to satisfy the prospectus delivery requirement through a short-form summary prospectus under Rule 498 of the Securities Act, provided the full statutory prospectus is available on the fund's website and upon request — extended the access equals delivery principle to the mutual fund context, allowing investors to receive a concise investor-friendly document while retaining access to the complete statutory document electronically.

The mutual fund registration statement on Form N-1A has a second part beyond the prospectus: the statement of additional information, or SAI, which contains more detailed information about the fund. The SAI is not part of the prospectus and is not delivered to investors automatically; the fund must provide it free of charge on request.

Best Interest and Prospectus Review Obligations

Under Regulation Best Interest at 17 CFR 240.15l-1, broker-dealers recommending participation in primary market offerings to retail customers are subject to a care obligation requiring reasonable diligence, care, and skill — which in practice generally includes a meaningful review of the prospectus to form a reasonable basis for the recommendation, including understanding the risk factors described in the prospectus, the financial condition of the issuer, and the appropriateness of the offering for the specific client's investment profile. FINRA Rule 2111 (suitability) continues to apply to recommendations to non-retail customers, because FINRA amended it effective June 30, 2020 so that it does not apply to recommendations that are subject to Regulation Best Interest.

A broker-dealer that recommends an IPO to a retail customer without reading the prospectus and without understanding the material risks described in it risks failing the care obligation under Regulation Best Interest, regardless of whether the prospectus was physically delivered.

The Offering Timeline — From Pre-Filing to the Aftermarket

Taken together, the rules above produce a sequence that licensing examinations commonly test.

Before filing, the issuer is in the quiet period. No offers, oral or written, may be made except communications within a safe harbor such as Rule 163A, Rule 168, Rule 169, or Rule 135. Underwriters may be selected and terms negotiated, but the public may not be solicited.

On filing, the registration statement and the preliminary prospectus are submitted to the SEC and the cooling off period begins. Oral offers, the red herring, compliant free writing prospectuses, and tombstone advertisements are now permitted. Sales are not.

When the SEC staff has completed its review, the SEC accelerates the effective date at the issuer's request, or the twentieth day after filing passes. At effectiveness the offering is typically priced and sales may be confirmed. The final prospectus is filed under Rule 424(b) within two business days after pricing, and delivery is satisfied under Rules 172 and 173.

After the offering, dealers must deliver prospectuses to purchasers in the aftermarket for the applicable period — twenty-five calendar days for an IPO of a listed or quoted security by a company not previously subject to SEC reporting requirements, and ninety days otherwise. Throughout the process, liability under Section 11, Section 12(a)(1), and Section 12(a)(2) stays in the background: a misstatement in the registration statement or prospectus, or a violation of the communication rules, exposes the issuer, and in many cases others, to rescission and damages claims within the time limits of Section 13.

Examination Relevance and Key Takeaways

The prospectus is tested on the SIE, Series 7, and Series 63 examinations in the context of the Securities Act of 1933, primary market offerings, the registration process, permitted and prohibited activities during the cooling off period, and prospectus delivery requirements.

Candidates should also be able to contrast a registered offering with an exempt offering, identify which communications are permitted in each period of the offering, and explain how federal liability under the Securities Act differs from the state-law framework of the Uniform Securities Act and blue sky laws.

The key points to retain are these.

A prospectus is the legally mandated disclosure document accompanying every registered public offering, required by Section 5(b) of the Securities Act of 1933 to be delivered to every buyer before or at the time of sale. Section 10(a) specifies the required contents. Section 11 imposes civil liability for material misstatements on the issuer, directors, officers, underwriters, and experts. Section 12(a)(2) imposes civil liability for material misstatements in any prospectus used to offer or sell securities. Section 24 imposes criminal penalties of up to five years and ten thousand dollars per wilful violation.

Three forms exist: the preliminary prospectus — the red herring — distributed during the cooling off period under Section 10(b) and Rule 430, containing all required information except the final offering price and the information that depends on it, which Rule 430 permits it to omit; the final prospectus — the statutory prospectus — containing the complete offering terms, filed with the SEC under Rule 424(b) within two business days of pricing and satisfying the delivery requirement through the access equals delivery rule under Rule 172 once the issuer has filed it on EDGAR, with underwriters and dealers required to send purchasers a copy or a notice of registration within two business days after the sale under Rule 173; and the free writing prospectus — any written offer communication used after registration statement filing, defined in Rule 405 and governed by Rule 433, which must not conflict with the registration statement and must carry a legend directing investors to the full disclosure document.

The prospectus must be delivered in its original, unaltered form — broker-dealers may not highlight, annotate, or modify it in any way. For an IPO by a company not previously subject to SEC reporting requirements, aftermarket prospectus delivery obligations under Rule 174 extend twenty-five calendar days after the offering date for listed or quoted securities and ninety days for other securities.

Communications are controlled by the period of the offering. Section 5(c) prohibits offers before filing except within safe harbors such as Rule 163A and Rule 135. After filing, oral offers, the red herring, compliant free writing prospectuses, and Rule 134 tombstone advertisements are permitted, but sales are not. A registration statement becomes effective on the twentieth day after filing or on an earlier date determined by the SEC, usually through an acceleration request under Rule 461. A violation of Section 5 gives the purchaser a right of rescission under Section 12(a)(1). Effectiveness is not an SEC endorsement, and representing otherwise is unlawful under Section 23.

Rule 415 allows an issuer to register securities once and sell them later, with the terms of each takedown provided in a prospectus supplement filed under Rule 424(b). A well-known seasoned issuer may use an automatic shelf registration statement that becomes effective on filing and lasts up to three years. A prospectus used more than nine months after the effective date must contain information as of a date not more than sixteen months before its use.

Under Section 11 the issuer is effectively strictly liable, other defendants may raise a due diligence defence, and damages are measured from the amount paid, not exceeding the public offering price. Section 12(a)(2) imposes liability on sellers subject to a reasonable care defence and applies only to public offerings under Gustafson v. Alloyd Co. Section 13 generally limits claims to one year after discovery and three years after the offering or sale.

Exempt offerings use an offering memorandum rather than a statutory prospectus, but the antifraud provisions, including Rule 10b-5, still apply. Rule 506(b) permits an unlimited number of accredited investors and up to 35 non-accredited investors with no general solicitation, and requires a Form D within 15 days of the first sale. Regulation A permits up to $20 million under Tier 1 and up to $75 million under Tier 2. Rule 144A permits resales of restricted securities to qualified institutional buyers. Section 18 preempts state registration of covered securities but leaves state antifraud authority in place. A mutual fund's statement of additional information is provided free of charge on request and is not delivered automatically with the prospectus.