The Public Offering Registration Statement - Securities Regulation

The Registration Statement

1. The central objective of the Securities Act is the preparation of a registration statement for securities offered to the public

   1. § 7 provides that the registration statement "shall contain the information, and be accompanied by the documents specified in Schedule A" of the Act.

      • BUT Congress also granted broad rulemaking authority in § 7 to the SEC to delete or increase the information or documents specified in Schedule A.

      • The Commission also has broad rulemaking authority under § 19(a), wherein the SEC has the power to adopt, amend, and rescind "such rules and regulations as may be necessary to carry out the provisions of" the Act, including the contents of registration statements and prospectuses, as well as "defining accounting, technical and trade terms" used in the Act.

        • With respect to accounting standards and principles used in the preparation of financial statements appearing in the registration statements (i.e., accounting based disclosures), the SEC has deferred to the private sector, in particular the Financial Accounting Standards Board (FASB).

   2. Under § 10, the Commission has the power to decide what portion of the information that appears in the registration statement must be included in the prospectus.

      • Thus, through § 10, the Commission regulates the contents of the prospectus.

2. How to know what to disclose in the Registration Statement:

   1. Step 1: As is true with any document that must be filed with the SEC, the first step is determining what form must be filed with the SEC.

      • In the registration of securities, the standard forms are S-1 and S-3.

        • Form S-1 is the default form because it applies insofar as the issuer does not meet the requirements to use Form S-3.

      • Each SEC form identifies the disclosures that must be made for specific items and directs the form's preparer to Regulation S-K for detailed guides for what precisely must be disclosed with respect to each item

   2. Step 2: Consult Regulation S-K with respect to the specific items called for by the form.

      • Regulation S-K performs this same function with respect to the Exchange Act's periodic disclosure requirements such as those on Forms 10-K and 10-Q

3. Information that must be included in the Registration Statement (Four Categories)

   1. (1) Information Bearing on the Registrant

      • The disclosures in this portion of the registration statement entail a fairly penetrating and detailed description of the registrant's business, property, and management.

        • For example, the executive officers' compensation and security ownership must be disclosed, and for each class of the registrant's outstanding common stock, the registration statement must set forth the high and low prices within the two most recent fiscal years, the number of their holders, and the frequency and amount of dividends for each class.

      • Summary and Risk Factors Sections

        • These are the most user-friendly sections

        • In the Summary, the issuer is required by Item 501(c) of Regulation S-K to set forth the terms of the offering and to identify the page where the risk factors are discussed.

        • In the Risk Factors portion of the registration statement, Item 503(c) of Regulation S-K requires the registrant to identify the principle factors that make the offering speculative or one of high risk.

        • Rule 421(d) requires that both the summary and risk factors sections be written in "plain English."

          • Rule 421(d)(2) specifies six minimum plain English principles for registrants: (1) short sentences, (2) everyday language, (3) active voice, (4) tabular presentation of complex material, (5) no legal jargon, and (6) no multiple negatives.

      • Financial Statements

        • The core of the registration statement's information about the issuer is the various financial statements required by Regulation S-X.

          • These include audited balance sheets for the end of each of the two proceeding fiscal years as well as audited income statements and statements of changes in financial position for each of three fiscal years preceding the date of the most recent audited balance sheet.

            • If the registrant has been in existence for a shorter period of time than two or three years, the requirements are shortened accordingly.

          • The position and performance of the registrant for the period between the last audited balance sheet and the filing of the registration statement must be disclosed through interim financial statements whenever the registration statement is filed more than 135 days after the date of the last audited balance sheet.

            • Interim statements do not have to be audited.

      • Items 301 and 302 of Regulation S-K require the registrant to disclose a wide array of other financial information about itself that supplements and emphasizes the information in the audited financial statements.

      • Item 303 of Regulation S-K requires management's discussion and analysis of the registrants financial condition and results of operations.

        • This section forces management to identify trends and developments that it has reason to believe will affect the registrant and reflects the Commission's attempt to encourage registrants to go beyond the bare disclosure of historical information so that the registration statement is even more relevant to the information needs of investors.

      • There are also disclosures that are guided by the desire to curb abusive conduct

        • For example, certain transactions between the registrant and its executive officers, affiliates, and promoters must be disclosed.

        • Similarly, registrants must disclose any changes in or material disagreements with its outside accountants over accounting or financial disclosure.

   2. (2) Information About the Distribution and Use of its Proceeds

      • Underwriters in privity with the registrant must disclose the general terms of their agreement and their compensation.

      • The net expected proceeds of the offering must be disclosed.

      • If the registrant has plans for the proceeds, those must be disclosed.

        • More detailed disclosure about the proceeds' use is required...