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Securities Offering Due Diligence Toolkit
Practical Law Toolkit w-000-6383 (Approx. 8 pages)
Securities Offering Due Diligence Toolkit
by Practical Law Corporate & Securities
| Maintained • USA (National/Federal) |
Resources to assist counsel to the underwriters or initial purchasers and issuer's counsel when they are 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 offering of securities, whether an offering registered under the Securities Act of 1933, as amended (Securities Act), or an unregistered offering.
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, results of operations, 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 documents, including:
- The registration statement and prospectus in a registered offering.
- The offering memorandum, offering circular, or official statement 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 and the Securities Exchange Act of 1934, as amended (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 may be able to point back to their due diligence investigation to assert a "due diligence defense" to potential liability (note that the issuer has no due diligence defense to liability under Securities Act Section 11).
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 requirements 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 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 registered and unregistered securities offerings.