What is a prospectus?

A prospectus is indeed a legal document that provides essential details about an investment offering, allowing potential investors to make informed decisions. It typically includes information such as the company's business model, financial statements, risks involved with the investment, and how the funds will be used. The purpose of the prospectus is to ensure that investors have the necessary information regarding their investment choices, which helps maintain transparency and compliance with regulatory requirements.

The other options, while relevant to finance, do not capture the essence of what a prospectus is. For example, summarizing a company's earnings focuses on past financial performance rather than future investment opportunities. A record of individual trades pertains to transactional data rather than initial offering details, and a financial statement documenting liabilities is a specific type of financial report rather than a document aimed at potential investors in new securities.