Legal Definitions - testing-the-waters

Definition: Testing-the-waters is when a company talks to certain investors to see if they are interested in buying the company's stock before the company officially files paperwork to sell the stock to the public. This is allowed by the Securities and Exchange Commission (SEC) under certain conditions.

Example: A company wants to sell stock to the public, but they are not sure if there will be enough interest. Before they officially file paperwork with the SEC, they talk to certain investors who might be interested in buying the stock. If the investors show enough interest, the company will file the paperwork and sell the stock to the public.

Explanation: Testing-the-waters allows companies to see if there is enough interest in their stock before they go through the expensive and time-consuming process of filing paperwork with the SEC. This can save the company a lot of money and time if there is not enough interest in the stock. However, companies can only talk to certain investors and must follow certain rules set by the SEC to protect investors.