A prospectus is a formal document required and filed by the Securities and Exchange Commission (SEC) that describes an investment offering to potential investors.
Why It's Important
The prospectus contains information about the company, it's management team, and the latest financial performance. It also states other information that the investor should know to make an informed decision like how the proceeds are used and risk factors. Every investment available on the exchange market has a prospectus, even mutual funds. The mutual fund prospectus is slightly different as it describes the obejectives of the fund and what philosophy is being used to pick the underlying stocks and bonds.
The investment can't be sold until the prospectus is approved by the SEC.