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Think about this: if you want to buy a car, you can test drive it and ask a mechanic to inspect it. A car is a tangible asset. You can see and touch it. But a security is an intangible asset: you cannot really see or touch it. Its value depends upon the performance of the company that issued it and the market’s assessment of the company’s prospects.
Of course, companies do possess tangible assets. But investors typically do not get a first-hand look at physical plants, equipment, contracts, books or records. They typically do not interview management. However, they do rely on the company to disclose all “material information,” that is, the facts a reasonable person would consider important in his or her investment decision. 
By issuing securities, under state and federal laws a company must tell potential investors about itself, its owners and the business opportunity, including risks, as well as a description of the securities and investors’ rights associated with ownership of the securities. Disclosure is how a company tells its story to potential investors. This is known as disclosure.
Preparing disclosure documents is one of the most important aspects of a proper securities offering. It demands time and concentration, as each component must be presented clearly enough so that the average person can understand the document.
Through disclosure, the company will want to describe its business, operations and results, and the business experience of its management. These documents will benefit a company by forcing it to focus on its business objectives. Also, disclosure may protect the company and its officers and directors from possible lawsuits by dissatisfied investors who may later claim the company made material misrepresentations or provided inadequate disclosure.
Disclosure must be in writing.

examples of Material Information

Note: please download and read “Prospectus Guidelines” for additional information.
Risks of Investment
Investors must be told about all of the risks related to the company’s financial condition, its business operations, its reliance on management and the terms of the offering. Each risk factor should be stated in a concise paragraph and relate to a specific business risk faced by the issuer or arising from the offering.
The Company
This should include the address of the main office and any significant subsidiary; the general nature of the business; its organization; when and where it was organized; the location of its plants and offices; whether it is a successor to another business and the circumstances under which the succession occurred.
Executive officers and directors should be identified, their positions described and their employment during the past five years provided. Usually, charitable or community activities and training certificates are not relevant. Additionally:
  • Compensation, including stock options and warrants, to which management is entitled.
  • The type and amount of the company’s securities held by management (as a percentage of ownership).
  • Transactions between the company and management. For example, if the president owns the building where the company rents office space and benefits from the rental payments.
Terms of the Offering
The number of securities available to be purchased—at what price and by what time—should be disclosed, as should the type of security (common stock, preferred stock, debt, etc.), and the rights associated with owning the stock. Also, disclose whether a minimum amount of money must be raised by a certain date for the offering to go forward. If so, the company usually places the money in an escrow account and returns it to subscribers via first-class mail if the minimum is not reached.
Use of Proceeds
The use of funds should be listed in order of priority. Any money used to pay management (repayment of a loan, for instance) should be disclosed. Broad categories of uses should be explained.
Net Tangible Book Value
If the company is offering common stock or a security convertible to common stock, it is important to state the net tangible book value (NTBV) on a per-share basis before and after the offering. NTBV equals the total assets (excluding copyrights, patents, goodwill, research and development costs, and other intangible items) minus total liabilities, divided by the number of shares outstanding. If the per-share NTBV is substantially less than the price per share the public is being asked to pay, the company should explain why.
Financial Information
The capitalization of the company should be discussed, as should the company’s assets, liabilities, cash flow and earnings. Be sure to provide reasonably current financial statements that have been prepared in accordance with generally accepted accounting principles by an independent certified public accountant.  Please see regulations found at 10 Pa. Code 609.031 & 609.034 for more details.
It is important to disclose any pending litigation against the company. The company must disclose whether it or any of its principals have violated state or federal securities laws or the rules of any national securities exchange or self-regulating organization. After the company sells its securities, it must continue to provide certain information to investors (please see 10 Pa. Code 606.011).  If the company has sold equity securities, shareholders have certain rights even though the principals might retain majority ownership.