An offering circular or “OC”, is a generic term applied to a document which is used to offer securities. The terms offering circular, listing particulars and prospectus are often used interchangeably despite have differences. Prospectuses can be very long and are legal requirement.
Offering circulars summarize the prospectuses and focus on providing the terms of the offering, information which includes
- price
- size
- deadlines
- use of funds
- relevant financial information
Though they are most associated with stock offerings on a stock exchange, offering circulars are also common in the sale of preferred shares. Many funds such as mutual funds and hedge funds utilize offering circulars to sell securities of various types to investors as well. The document is delivered to individuals and brokerage houses who are interested in making a potential purchase of the newly issued stock or mutual fund.
An OC is mainly aimed at investors and is written with securing investment capital as the ultimate aim. Many investors do not want to read a full prospectus due to its length and the time required. Instead, they may ask for the offering circular, a shorter document that summarizes the information found in the prospectus.
Offering Circular Example
The main function of an offering document, and in particular the offering circular, is to highlight the investment to investors of the company in a shorter document than the prospectus. This minimizes the time potential investors need to make an educated decision about reading the longer final prospectus. It also gives the issuer more breathing room since it takes less time for someone to read the offering circular and make a decision on investment.
Once the issuing firm has decided it wants to conduct an initial public offering (IPO) of its shares it will need to prepare an offering circular. Initially the firm hires an underwriter, which estimates the value of the company shares and subsequently writes a prospectus that discloses important information about the company to potential investors. Procedures such as these have led to the rise of increased use of the Special Purpose Acquisition Company (SPAC).
