Offering Circular (Securities) - Explained
What is an Offering Circular?
Written by J. Mance Gordon
Updated at April 20th, 2024
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What is an Offering Circular?
An offering circular is a brochure issued when a new security is listed. Individuals as well as brokerage institutions that are fascinated to invest in the recently issued mutual fund or stock are provided with an offering circular. Though it is not as long as a company's prospectus, but still has some significant information to offer.
Such circular must offer certain insights or elements of information that makes it easier for the potential investors to determine if they should invest in a specific product or not. These insights should cover the name of the company or person issuing the security, the goal of mutual funds, the terms and conditions of the issue, the purpose for issuing the stock, or any other information that could be helpful for a person who is willing to invest in the future.
An offering circular is different from preliminary or red herring prospectus, and should not be used interchangeably. The preliminary or red herring prospectus gets issued during the Initial Public Offering (IPO) and seeks to create interest in the fresh issue. It compromises on several details about the fresh issue. In contrast, the offering circular gives more information on the new issue that helps investors decide whether they should be investing in it or not.
How is an Offering Circular Used?
Through an offering circular, investors gain information about a new issue. This document tells them about the security, and includes financial information about the issuer, the goal of raising funds, followed by the conditions of the security assurance. It is a legal piece of information and is a necessity for most of the new issues.
However, red herring or preliminary prospectus doesn't disclose necessary information about the new issue. The preliminary prospectus is more of a marketing thing that is offered to prospective investors during the IPO stage to seek signs of interest. Unlike offering circular, it doesn't contain any vital information that is a must to be reviewed by investors before investing in a security.