Form S-1 Risk Factor Disclosures l Securities Lawyer 101
The Securities Act of 1933 is often called the “truth in securities” law. It has two basic objectives: to require that investors receive financial and other important information about securities being offered for sale, and to prohibit deceit, misrepresentation, and other fraud in the sale of securities.
When an issuer files a Form S-1 registration statement, it must provide specific Form S-1 risk factor disclosures about its business plan, its operating history and financial condition. Risk factors are a primary part of Form S-1 registration statement disclosures. Item 503 of Regulation S-K sets forth the requirements for risk factor disclosures.
The SEC has stated that issuers should not present risks that could apply to any issuer or any offering and effective risk factor disclosure should be unique to the particular issuer. Risk factor disclosures are not only a matter of compliance with Regulation S-K line item requirements.
Issuer should provide concise identification of each risk factor under a subheading and limit each subheading to one risk. Risk factors should be easy for an investor to understand.
To simplify risk factor disclosures, separate categories should be used. Some examples of common risk factor categories include:
Risk Related to Financial Condition
• Company operating history
• Liquidity and ability to borrow
• Whether the issuer has resources to stay in business for next 12 months
• Whether the issuer’s resources are sufficient to implement or complete its business plan
• Whether an auditor has expressed doubt about the company continuing its operations
Risks Related to Management
• Whether the loss of certain officers & directors would harm the issuer
• Whether management has experience in overseeing the operations of a public company
• Whether management has knowledge and internal control over financial reporting
• Whether independent directors have been appointed
• Whether management holds or controls the issuer’s voting securities
Risks Related to the Issuer’s Securities
• Liquidity of the Issuer’s Securities
• Whether the issuer’s securities are a penny stock (less than $5.00 per share) and related restrictions
• Convertible securities and other shares eligible for resale in the future that could dilute investors
Risks Related to the Issuers Products and Services
• Internal and external factors causing decreased demand for the issuer’s services and/or products.
• Whether the issuer has few or many customers
• Availability of suppliers and manufactures for the issuer’s products
• Intellectual property protection
• Risks related to the issuer’s competitive position
• Whether the demand for the issuer’s products is cyclical or seasonal
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855