Prospectus supplement: Overview, definition, and example
What is prospectus supplement?
A prospectus supplement is an additional legal document that updates or adds to the information in a previously filed prospectus—the formal document companies use to offer securities (like stocks or bonds) to investors. It’s typically used when a company wants to issue new securities under an already-approved registration.
In simple terms, a prospectus supplement gives investors the latest details they need about a specific offering, while still relying on the broader background info in the original prospectus.
Why is prospectus supplement important?
In securities offerings—especially public ones—transparency is key. The prospectus tells investors what they need to know about the company, its finances, and the risks. But because companies might offer multiple rounds of securities under the same registration, a prospectus supplement is used to provide up-to-date or deal-specific information like pricing, the number of shares being offered, or recent financial changes.
This keeps investors informed and helps companies comply with U.S. securities laws. Without a prospectus supplement, an offering could be considered incomplete—or even illegal.
Understanding prospectus supplement through an example
Let’s say your business registers a shelf offering with the SEC to sell up to $50 million in securities over time. The original prospectus contains general information about your business and risks.
Six months later, you decide to offer $10 million in shares. Instead of creating a whole new prospectus, you issue a prospectus supplement that includes:
- The number of shares being sold
- The exact price per share
- Use of proceeds from this specific offering
- Any recent changes in financials
This supplement is delivered to investors along with (or referencing) the original prospectus—together, they form the full legal disclosure.
An example of a prospectus supplement clause
Here’s how a clause mentioning a prospectus supplement might appear in an underwriting agreement:
“The Company shall prepare and file a Prospectus Supplement, in compliance with applicable securities laws, setting forth the terms of the offering, including the number of securities offered, the price, and any material changes since the filing of the Base Prospectus.”
Conclusion
A prospectus supplement is a key tool for companies raising capital—it allows them to update investors with current, deal-specific information without rewriting the full prospectus.
If your business is planning to issue securities under an existing registration, you’ll likely need a prospectus supplement to stay compliant and transparent. It’s the legal bridge that connects your past filings with your present offer.
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.