Used by companies that are selling securities, a prospectus is used to disclose all the essential information that investors need to know about the organization. These facts may include outstanding loans, revenue data and other key risks they face in the market.
The prospectus can serve as a legal document, as well as a sales tool to help inspire investors to put funds behind the organization. For legal purposes, it can serve as evidence that investors knew the important facts before they decided to invest in a particular company. There are laws at both the state and federal levels that require when companies must issue a prospectus, as well as what type of information must be included within.