Top 10 Practice Tips: Risk Factors


Summary

Item 503(c) (17 C.F.R. § 229.503) of Regulation S-K requires that an issuer include in its registration statement risk factor disclosure, which sets forth the possible circumstances or situations that could make investing in a company’s securities risky or speculative. While it is rare that an investor will base their investment decision solely on what is included in the company’s risk factors, risk factors are a key component of a company’s offering document as well as its annual and quarterly reports. One purpose of risk factors is to educate potential investors on the risks of investing in a business; however, risk factors also serve as a substantial mitigating factor in any lawsuit brought against a company in the event that the company and its securities do not perform as expected. As a result, in addition to being required by the Securities and Exchange Commission (SEC), risk factors are important for liability protection reasons. If an investor loses money on an investment but ...