Securities Offering Due Diligence Toolkit
Resources to assist issuer's counsel and counsel to the underwriters or initial purchasers when conducting a due diligence investigation of an issuer for a securities offering. This Toolkit also includes resources related to due diligence on selling securityholders, prospective investors and other offering participants.
Conducting a due diligence investigation of the issuer is a crucial step in preparing for an SEC ( www.practicallaw.com/9-382-3806) -registered or unregistered offering of securities.
In the context of a securities offering, due diligence is a comprehensive investigation of a company's business, the associated risks and the company's financial position and prospects. It is largely an exercise in gathering all the relevant information (financial, business and legal) about, and confirming the accuracy and adequacy of, the disclosure to be included in the company's offering document, the:
Registration statement ( www.practicallaw.com/4-382-3743) and prospectus ( www.practicallaw.com/4-382-3719) in a registered offering.
Offering memorandum ( www.practicallaw.com/7-383-2213) in an unregistered offering.
The information obtained through due diligence on the issuer helps the offering participants to:
Draft a high quality offering document from both a disclosure and marketing standpoint.
Ensure compliance with the disclosure requirements of the Securities Act of 1933 ( www.practicallaw.com/1-382-3805) (Securities Act) and the Securities Exchange Act of 1934 ( www.practicallaw.com/5-382-3808) (Exchange Act), if applicable.
Reduce the risk that offering participants may be held liable for securities fraud claims by ensuring that the statements in the offering document:
are supported by a factual investigation of the company and its business; and
do not provide incomplete or misleading disclosure.
If investors ultimately do bring securities fraud claims, offering participants other than the issuer may be able to point back to their due diligence investigation of the issuer to assert a "due diligence defense" to potential liability.
Considered more broadly, due diligence may also include investigations of selling securityholders, prospective investors and other participants in the offering. For example, in an unregistered offering where the relevant exemption or safe harbor from the Securities Act registration requirement limits the offering to certain types of investors or prohibits the participation of "bad actors," counsel may need to conduct inquiries on parties other than the issuer.
The appropriate scope of due diligence varies from offering to offering depending on several factors, including:
The nature of the offering, including:
the offering size;
the type of securities offered;
the Securities Act and Exchange Act disclosure requirements and liability provisions applicable to the offering;
the requirements of any Securities Act exemption for the offering; and
the jurisdiction in which the securities are being offered.
The nature of the issuer's business.
Whether the issuer is a reporting company ( www.practicallaw.com/2-382-3758) with Exchange Act reports already available to the public.
This Toolkit is a compilation of continuously maintained resources to help guide counsel through the due diligence process for SEC-registered and unregistered securities offerings.