Why Corporations Use Plain English

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The SEC is concerned that corporations use “plain English” in their filings because the disclosure documents need to be easy to be understood by the readers such as investors, brokers, and investment advisers. As many readers do not have background knowledge in accounting, law or investment banking, corporations should communicate the complex information disclosed clearly in an everyday language the readers can understand, plain English, instead of legalese and technical terms. If corporations use plain English to file their documents, it will be easier for investors to know more about their investments and the corporations they are investing in. Moreover, investors will be more likely to catch the important information necessary to make informed decisions of whether they should hold or sell their shares. Use of plain English also helps brokers and investment advisers to understand disclosure documents easily and make good recommendations to their clients quickly. Overall, effective communication with investors and other readers using plain English can help corporations have better relationships with them and minimize the costs of dealing with confused readers. Thus, switching to plain English is a good business decision for many companies. The SEC has created “A Plain English Handbook” to help corporations have a smooth transition from legalese to plain English in filing the documents. The handbook provides practical tips on how to create plain English disclosure documents and some examples of what has worked for others who already written their documents in plain English. Yet, as not all the tips will apply to every corporation or every document, it is completely free to choose the ones which work for the user as long as disclosure documents follow the SEC’s federal securities laws.
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