No, it’s not a Harry Potter spell, Flux fam.

A prospectus is a document that a company files with the Australian Securities and Investments Commission (aka the big dawgs at ASIC) when they want to have an IPO and sell shares publicly.

Every country will have its own version of ASIC, so depending where you are will determine who a company needs to give the prospectus to.

So what’s actually in it?

It’s a broad document that provides details about the investment a company is offering. It’ll have things like:

• A summary of the company (think: management team and age of business)
• Financials (think: profit & loss, balance sheet)
• The number of shares they’re offering as part of this listing
• What ownership or voting rights you’ll get as a shareholder
• The risks of being a shareholder
• Whether the offering is public or private.
  

Why is a prospectus important?

Rather than stabbing in the dark, the prospectus gives information to a prospective investor so that they can make an informed decision about whether or not to invest.

As we know, all businesses have an element of risk - so the prospectus also highlights the potential risks that the business may face. 

For example, Uber’s IPO in 2019 suggested that the business may never even make profit. Crazy!