Back Stop

  

Categories: IPO, Trading, Incorporation

Cammy's Kazoos says: "I want to go public. I want to sell a million shares at $20 per share." Cammy's finds Colson's Awful Underwriters, who says: "We will take you public, friend."

Colson's markets the shares to brokers and offers parts of the deal by July 26, 2019. The big date comes, and 900,000 shares are left. Oops...Colson's agreed to buy all unsold shares. That's a back stop.

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Finance: What is a Prospectus?14 Views

00:00

Finance a la Shmoop. What is a prospectus? Well it's just a marketing document,[prospectus book]

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selling money and it outlines the basics of the investment, that the money being

00:12

raised is actually going for. That is like, what does the business do

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for a living? How much revenue has it produced the

00:19

last few years? How much profit? How many units of whatever were sold? What did

00:23

those units cost the company to produce? Who's running this show and did [list of questions]

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they have any felony convictions? Who's on the board? Any lawsuits outstanding

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against the company? Yah it's stuff like that. So prospectus, is the set of papers

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that covers all of the above and goes out with a new security that's being

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offered to buyers and that can be equity and or debt and or both. Prospecti are

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generally given for larger financial offerings. That cover more than just

00:50

sophisticated investors. For small private offerings, money is raised via a

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very simple contract. Usually just a few pages are so. Covering the basics that a [man signing contract]

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prospectus we cover and that includes what common industry parlance refers to

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as a big boy letter. Meaning that if the investment goes fully bankrupt, that you

01:08

by signing here, you represent and warrant that you are a big boy or girl

01:12

and that you have the financial sophistication to understand the risks

01:17

and you won't cry about things if they turn sour. But small investment which

01:21

carries extremely high risk of full failure. [man walking with papers] Yeah those are usually done by

01:26

professionals ie the wealthy. So the government doesn't view them as needing

01:31

the same kind of training wheels and safety netting that the average Joe Blow

01:35

needs when he's making an investment. Prospecti are required in registered

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offerings, to protect the average investor, from sleazy wheeler dealers. Who

01:44

might not disclose that the wastewater from the company's chemical processing

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plant did in fact produce three headed fish downstream. As cool as it is to have[3 headed goldfish]

01:53

three headed fish, well three headed people, less cool. So it might be a

01:57

problem for that fertilizer producer in the future. That prospectus marketing

02:02

document reflects the fact that the company, is you know, prospecting for

02:06

money here. And in the process the company has to disclose all the basics

02:09

about what it's raising the money for, the good, the bad, and

02:13

the three-headed. Yeah glug-glug that's a prospectus. [man in study with scotch]

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