What it is:
How it works (Example):
Let's assume that Company ABC makes a public offering of shares in order to finance its business expansion. Company ABC, the issuer of the stock, must file a prospectus with the Securities and Exchange Commission (SEC) summarizing the stock offering, associated risk and the company's financial information.
Why it Matters:
Issuers are legally responsible for the securities they issue. To fulfill their legal obligations to investors, they must follow strict reporting standards as set by the SEC, including quarterly reporting of financial performance and conditions, material developments and all operational activities required by regulations in the jurisdictions of the security.
Disclosure requirements for issuing companies were outlined by the Securities Act of 1933 and became more stringent when the Sarbanes-Oxley Act of 2002 was passed into law. Annual and quarterly statements, prospectuses, press releases and other reports issued by publically-traded companies are available for download at the SEC website, www.sec.gov. Never invest in a company's debt or stock without reviewing all of the documents mentioned above.