A red herring prospectus is a document submitted by a company (issuer) who intends on having a public offering of securities (either stocks

Stocks

Stocks are devices used in the medieval and colonial American times as a form of physical punishment involving public humiliation. The stocks partially immobilized its victims and they were often exposed in a public place such as the site of a market to the scorn of those who passed by...

 or bonds

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

). Most frequently associated with an Initial Public Offering

Initial public offering

An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

 (IPO), this registration statement must be filed with the Securities and Exchange Commission(SEC).

"Red-herring prospectus" means a prospectus, which does not have complete particulars on the
price of the securities offered and quantum of securities offered.

Contents

"Red-herring prospectus" Means a prospectus, which does not have complete particulars on the
price of the securities offered and quantum of securities offered.
The red herring statement contains:

1. purpose of the issue;
2. proposed offering price range;
3. disclosure of any option agreement;
4. underwriter's commissions and discounts;
5. promotion expenses;
6. net proceeds to the issuing company (issuer);
7. balance sheet
   Balance sheet
   In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
   
   ;
8. earnings statements
   Income statement
   Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
   
    for last 3 years, if available;
9. names and address of all officers, directors, underwriters and stockholders owning 10% or more of the current outstanding stock;
10. copy of the underwriting agreement;
11. legal opinion on the issue;
12. copies of the articles of incorporation of the issuer.

Prospectus

Since the registration statement is a very lengthy and complex document, the Securities Act of 1933

Securities Act of 1933

Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...

 requires the preparation of a shorter document, known as a prospectus, for investors to read. Upon the registration becoming effective, a FINAL PROSPECTUS is prepared which includes the final public offering price.

Why it is called so?

The term 'red herring' originates from the idiomatic use of that phrase

Red herring (plot device)

Red herring is an idiomatic expression referring to the rhetorical or literary tactic of diverting attention away from an item of significance...

.

The reason it is called a red herring is due to the red herring fish which is used as a bait for bigger fishes. Likewise a red herring prospectus is the first thing to attract people without disclosing much information about the deal.
e.g. "A Registration Statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. Information contained herein is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective."

Registration

The minimum period between the filing of a Registration and its effective date is 20 days, called the "cooling-off period

Cooling-off period

Cooling-off period may refer to:* Period of time after a purchase during which the purchaser has the right to return goods for a refund, or to cancel a contract without penalty...

." This is the minimum number of days. The SEC can deem the registration "deficient" in which case registration does not become effective until the deficiencies are corrected. The SEC does not approve the securities registered with it, does not pass on the investment merits, nor guarantee the accuracy of the statements within the registration statement or prospectus. The SEC merely attempts to make certain that all pertinent information is disclosed.