What Does Final Prospectus Mean?
A final prospectus is the final version of a prospectus printed for distribution during a public offer of securities. It is the official document given to investors and contains a complete disclosure of all facts pertaining to the offering. The idea behind this prospectus is to give investors the opportunity to read through all the facts and make informed decisions about their investments. However, in practice, this final prospectus is only given to investors after they have bought a stock.
Divestopedia Explains Final Prospectus
A final prospectus's preparation begins begins when a company that is looking to go public hires an investment banker to act as the underwriter. This underwriter is responsible for creating all documents, including the preliminary and final prospectus. The first step is to create a preliminary prospectus that contains information about the company and its offerings, but is subject to change. In this sense, it is not a complete one as information can be changed at a later date by the underwriters. Once this prospectus is ready, it is filed with the SEC.
The SEC staff reviews the prospectus and checks to see if all relevant information is present. The disclosure details will be particularly scrutinized to ensure they meet the established standards and guidelines. Once the SEC is satisfied with the details, it will make the prospectus "effective." On the other hand, if the SEC feels that changes have to be made to the prospectus, it sends it back to the underwriter for corrections.
The next step in the process is to use the preliminary prospectus as a tool for sales. Companies send it to potential high net worth investors and institutional investors, and even welcome them for a tour of the company. When investors give their consent to buy, the underwriter buys the shares from the company and sells it to said investors. After the purchase is made, the buyers are given the final prospectus.
Though this practice seems to deviate from the original intent of having a prospectus, this has become an accepted practice in today's financial world. It also stems partially from the ignorance of the buyer regarding the importance of the final prospectus.