Use of Proceeds In Form S-1 Registration Statements – Form S-1
Companies going public with Form S-1 have several options in how to structure their transaction when registering securities with the Securities and Exchange Commission (“SEC”). Form S-1 enables issuers to raise capital using the registration statement or register shares on behalf of existing shareholders. If the issuer seeks to raise capital using the S-1’s registration statement expansive disclosure is required of the intended use of proceeds.
Item 504 or Regulation S-K establishes the requirements for disclosure of Form S-1 proceeds in the registration statement.
The issuer must disclose its intended use based upon different percentages of the amounts of money raised. The use of proceeds section describes how the funds raised in a securities offering will be spent.
Form S-1 registration statements that do not register capital shares for an issuer to sell such as a resale or selling shareholder registration statement do not contain a use of proceeds. If an issuer plans to raise capital then the information is required.
When an issuer conducts a securities offering on a best efforts basis, the SEC requires the information be presented for different percentages such as 25%, 50%, 75% and 100%. The SEC requires that the issuer provide a detailed explanation about the intended use of offering proceeds in this section. For example, if a company intended to buy inventory, it would have provide a footnote that included the cost of the facility and what would occur if it did not raise enough money to purchase all inventory planned.
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