Offering circular is the term used for the new shares or securities listed in the initial public offering. As the name implies, it is circulated among individual investors and brokerage companies. The company that has issued the additional securities contacts all the potential investors that might be willing to buy the new securities. The prospectus is not necessarily detailed with all the terms and conditions. It is rather a brief prospectus that only lists the basics of the newly issued shares.
Note that offering circular and the red herring is not the same. The latter is issued when the company decides to issue the initial public offering. Often known as the preliminary prospectus, the red herring is not a long and detailed document. It doesn’t list any information about the company. Besides, the company is supposed to draft the preliminary prospectus with the Securities and Exchange Commission. Offering circular might be a brief document, but it still contains all the specifics of the new securities.
This prospectus is mainly drafted to allow investors to get a clear picture of the specifics about the new issue. The primary purpose of the offering circular is to inform the investors about the financial status of the company issuing these securities, the reason they decided to issue the shares, how they are planning to use the funds raised from this new issue, and what do they offer in return. Note that this prospectus is a legal paper that is necessary for certain securities. However, not all new issues need an offering circular.
As discussed above, the main purpose of this prospectus is to help investors make a decision concerning the new securities. It helps them decide whether or not they should make an investment. It gives them a detailed view of the current position of the company and the purpose of raising funds. Based on this information, they can decide if the investment is a suitable option for them. Any information that the trader or investor can use to figure out the details of the issuer and the purpose of issuing the new shares can be mentioned in the offering circular.
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As mentioned above, red herring and offering circular are different documents. The red herring is not a detailed document that covers all the important specifications about the new securities issued to the public. The preliminary prospectus is distributed among the prospective investors several days before the initial public offering. This document helps the companies to determine the interest of the Investing companies and brokerage firms in buying the new securities.
It could also be used to request their suggestions on the prices of the stocks. These documents do not contain any information that could be useful to the investors about the new issue. When it comes to the offering circular, the company is supposed to mention the important details about the new issue and the issuer clearly.