What is a Registration Statement?

A registration statement is a disclosure statement that a business files with the Securities and Exchange Commission (SEC) when it wants to sell equity securities to the public. This extensive document summarizes the financial position of the business, its business model, how it expects to use the proceeds from the sale, related party transactions, the management team of the business, and other topics of interest to investors. The SEC must approve a filed registration statement before securities can be sold.

What is the Form S-1?

The form typically used for a registration is the Form S-1, though a larger entity can file the shorter Form S-3 instead. A Form S-1 is usually filed with the SEC prior to an initial public offering.

Advantages of a Registration Statement

The main advantage of a registration statement is that it provides sufficient information to the purchasers of an issuer’s securities to ensure that they have complete information about the organization before making any purchases. This reduces the risk that investors will be hoodwinked by the issuer, buying into a disreputable business.

Disadvantages of a Registration Statement

The main disadvantage of a registration statement is that the form is quite time-consuming and expensive to produce. This can be a substantial burden for smaller businesses, effectively preventing them from selling securities to the public. The result is a bifurcation of the securities market, where large enterprises can afford to sell shares to the public, while smaller ones cannot.