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Prospectus

Definition - What does Prospectus mean?

A prospectus is a document that is published by, or on behalf of, the selling company in an acquisition, a private capital placement or an initial public offering. It contains information about the company's financial status, business plan, recent performance, contingent obligations, and other operating and financial matters. Its purpose is to give potential investors the ability to analyze the growth and profitability prospects of the selling company.

Divestopedia explains Prospectus

A prospectus is issued to market a deal to investors. It is a formal summary of a proposed project, describing the chief features of the project to investors or prospective buyers. The prospectus usually contains the following sections:

  • The structure and goals of the company;
  • An overview and history of the company;
  • The services or products the company offers;
  • A management profile;
  • A summary of the company's ownership;
  • The existing customer base;
  • The reasons for selling; and
  • The desired deal structure.

If the target company is public, it would need to issue a proxy statement to obtain shareholder approval for the proposed merger or acquisition. The proxy statement issued discloses the deal to investors in sufficient detail, such as terms, history, effects of the acquisition, and benchmarks to evaluate the price being paid. Sometimes the proxy statement and the prospectus may be combined to provide shareholders with a complete detail of the transaction.

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