# Understanding Red Herring Prospectus: Definition, Benefits, and Example

![Red Herring: A preliminary prospectus filed by a company with the Securities and Exchange Commission, usually in connection with its initial public offering.](https://www.investopedia.com/thmb/U6iTfniJycCkGyVwxqdJI7e89TM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/redherring.asp-FINAL-1-fc0ef4bf1ca5437a8f6d4e340ffe74f1.png)

*— Investopedia / Joules Garcia*

> **Definition**
>
> A red herring is a preliminary prospectus filed by a company with the Securities and Exchange Commission (SEC), usually in connection with an initial public offering (IPO), that excludes key details.

## What Is a Red Herring?

A red herring is a preliminary prospectus and is critical part of the [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO) process, providing potential investors with essential company information. It's purpose is to ensure transparency while awaiting SEC approval. A prime example is the red herring 2012 filing of Meta (formerly Facebook) when they prepared to launch thier IPO. Let's explore the benefits and functions of a red herring prospectus in the IPO process.

## Understanding the Function of a Red Herring Prospectus

A red herring [prospectus](https://www.investopedia.com/terms/p/prospectus.asp) is the initial draft filed with the SEC, along with other drafts made for approval. The SEC reviews it to ensure no false or misleading information is included. They also check if any important information is missing.

The term "red herring" comes from a bold red note on the cover of the prospectus. This note says a registration statement is filed with the SEC but is not yet active. The prospectus is incomplete, and its details might change. So, securities cannot be sold or bought until they're effective. It doesn't mention the price or number of shares. It's like submitting drug data to the FDA; it's registered but not approved.

When the registration becomes effective, the company releases a final prospectus with the IPO price and share count. Expressions of interest can then turn into orders. It takes at least 15 days for this process. The SEC ensures all information is disclosed, but doesn't approve the securities.

> **Important**
>
> A red herring is a preliminary document filed with the SEC showing that a security offering is not yet active.

## Advantages of Using a Red Herring Prospectus

A red herring prospectus can function as a [source of information regarding a potential offering](https://www.investopedia.com/terms/t/teaser.asp) that is currently being crafted by a particular company. Versions of the prospectus that have not been fully reviewed by the SEC may present a company "too" favorably. This view may be adjusted after the SEC has requested revisions before final approval.

The red herring prospectus contains substantial information on the company as well as information regarding the intended use of proceeds from the offering, market potential for its product or service, [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp), details regarding pertinent management personnel and current major shareholders, pending litigation, and other pertinent details.

### Key Takeaways

*   A red herring is a preliminary prospectus filed with the SEC in connection with an IPO, excluding key details like price and share number.
*   The SEC reviews a red herring prospectus to ensure all information is disclosed and does not approve the securities themselves.
*   The term "red herring" originates from a bold disclaimer in red, indicating the information is not final and may change.
*   A red herring provides substantial information about a company's operations, prospects, and financials, excluding price and number of shares.

## Real-World Example: Facebook's Red Herring Filing

Facebook Inc. ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)), now Meta, filed a red herring, which was essentially a [Form S-1](https://www.investopedia.com/terms/s/sec-form-s-1.asp) with a disclosure. The “red” bold disclaimer on Facebook’s filing on Feb. 1, 2012, read:

> The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting offers to buy these securities in any state where the offer or sale is not permitted.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Draft Registration Statement Processing Procedures Expanded](https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Form S-1](https://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm)."