Permitted free writing prospectuses: Overview, definition, and example
What are permitted free writing prospectuses?
Permitted free writing prospectuses (FWPs) are written communications used in connection with the offering of securities, which are not required to be filed with the Securities and Exchange Commission (SEC) before they are distributed. These prospectuses are typically used by issuers, underwriters, or other parties involved in a securities offering to provide additional information to potential investors beyond what is included in the formal registration statement. The term "permitted" refers to the fact that these communications are allowed by the SEC as long as they comply with specific rules and guidelines.
For example, a company offering shares in an initial public offering (IPO) may release a free writing prospectus that highlights key aspects of the company’s business or financial performance, which is not included in the prospectus that was initially filed with the SEC.
Why are permitted free writing prospectuses important?
Permitted free writing prospectuses are important because they provide flexibility in the communication process during securities offerings. They allow companies to provide additional, real-time, or more detailed information to potential investors without waiting for formal filings or revisions to the official registration documents.
For businesses and issuers, these prospectuses can be an effective way to engage potential investors, highlight critical information, and provide updates or clarifications during the offering process. For investors, they offer a means to access more detailed or specific information to inform their investment decisions.
Understanding permitted free writing prospectuses through an example
Imagine a company conducting an IPO releases a permitted free writing prospectus to showcase recent growth figures or key business milestones. This document might highlight an important partnership or a major product launch that occurred after the initial registration was filed with the SEC, giving investors more up-to-date information before they make their investment decisions.
In another example, a bond issuer might use a permitted free writing prospectus to clarify certain terms of the bond offering, such as changes to interest rates or updated financial performance metrics. This allows the issuer to quickly address any developments without needing to amend the formal registration statement.
Example of a permitted free writing prospectus clause
Here’s how a permitted free writing prospectus clause might appear in a contract:
"The Company may use permitted free writing prospectuses in connection with the offering of the securities, provided that any such document complies with the requirements of the Securities Act of 1933, including that it is not inconsistent with the information in the registration statement or any other offering materials, and is not distributed until it has been approved by the underwriters."
Conclusion
Permitted free writing prospectuses offer companies the ability to share additional, timely information with investors during securities offerings while maintaining compliance with SEC regulations. These communications are essential for providing clarity, transparency, and updates to potential investors.For issuers, properly utilizing free writing prospectuses can enhance investor relations and improve the overall effectiveness of an offering, while for investors, they provide access to critical and supplementary details that can influence investment decisions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.