What Is a Prospectus?

By Keith Noonan – Updated Feb 25, 2025 at 9:48 AM

Key Points

Prospectuses detail business models, risks, and financial health before IPOs.
Investors should examine management's investment in company stock.
Reading prospectuses helps gauge future company potential and challenges.

When private companies in the U.S. are getting ready to make their stock available through a public exchange, they need to provide information to investors and regulators. To do this, the company going public will typically file a prospectus statement with the Securities and Exchange Commission (SEC).

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A person inspects a document with a magnifying glass. — Image source: Getty Images.

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Net Income

Revenue minus all expenses.

It's also a good idea to read up on information about the company's leadership. A company's management team and board of directors play a huge role in shaping its performance, and assessing whether those involved are capable of helping the business succeed is important. Investors may also want to look at the statement of beneficial ownership in the prospectus to see how much of the company's stock is owned by executives and board members. If a leadership team is heavily invested in a company's stock, it can be a sign they are confident in the business -- and that they have healthy incentives to pursue initiatives that help push its share price higher.

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About the Author

Keith Noonan is a contributing writer at The Motley Fool covering technology, consumer goods, and other sectors. He holds a bachelor’s degree in English from Boston College.

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Keith Noonan has positions in Airbnb. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.