What Investors Should Be Told About the Use of Proceeds

The “Use of Proceeds” section is one of the most important—and most frequently overlooked—parts of a securities offering. It tells investors exactly how a company intends to use the capital it raises and provides insight into management’s priorities, financial condition, and strategic direction.In this episode, securities attorney Frederick M. Lehrer explains why generic disclosures such as “working capital” or “general corporate purposes” often fail to give investors meaningful information. He discusses how companies should disclose debt repayment, insider compensation, litigation costs, operating losses, acquisitions, research and development, and other planned uses of offering proceeds while avoiding both misleading omissions and false precision.The discussion also covers minimum-maximum offerings, management discretion to reallocate capital, consistency throughout the offering document, board oversight, and when changing circumstances may require additional disclosure.Whether you’re an issuer, investor, founder, executive, or securities professional, understanding the Use of Proceeds section is essential to evaluating both regulatory compliance and management credibility.Topics covered:Why the Use of Proceeds section mattersAvoiding vague disclosureDebt repayment and existing obligationsMinimum-maximum offeringsManagement discretion over capital allocationConsistency throughout the offering documentBoard oversight and disclosure obligationsBuilding investor confidence through transparent capital planningAbout the seriesInside Securities Law is hosted by securities attorney Frederick M. Lehrer and examines the legal, regulatory, and practical issues that shape capital formation, SEC compliance, securities offerings, corporate governance, and investor protection. Each episode provides practical guidance for companies, boards, founders, investors, and legal professionals navigating today’s securities landscape.