Prospectus vs. Offering Memorandum: The Differences & Why They’re Important

Before you invest in anything, issuers are required, by law, to disclose the crucial information necessary for investors to make informed decisions with their money. This information could include anything from potential risks to a detailed outline of the investment. There are two terms you may have heard interchangeably to describe this document: offering memorandum and prospectus. But these two documents aren’t exactly the same, and they’re used in specific situations. 

What is an offering memorandum?

An offering memorandum is a detailed document outlining a potential investment; think of it as a detailed business plan for an investment. They’re used when dealing with securities exempt from registration, such as private sale stocks or mortgage investment corporations. 

An offering memorandum will include:

• A summary of the terms and investment,
• Management biographies,
• Operational explanation,
• Risk and objectives,
• Terms of investment, and
• Comprehensive financial statements.

What is a prospectus?

A prospectus is used when dealing with publicly offered investments such as mutual funds or publicly traded stocks. Unlike an offering memorandum, these are required and filed with the Securities and Exchange Commission (SEC). It’s often filed in two stages: the summary prospectus and the final prospectus. The summary prospectus must undergo a review process to see if there’s enough interest from investors before moving forward to the final prospectus. 

Within a prospectus, an investor will find:

• Relevant goals,
• A summary of the company and type of securities,
• Sales charges and expense ratio,
• Management team information and data,
• Investment strategy,
• Tax information, and
• Broker compensation.

In both cases, prospectus and offering memorandum, this document is part of the investment process. 

Why are these documents important?

While used in different situations, both these documents are crucial for attracting investors and providing the necessary information to make informed decisions with their money. These documents often outline the terms for investors to invest as well. 

Are you interested in reviewing the offering memorandum for Cooper Pacific? Get in touch with Jordan on our team today to learn more.