Safe Harbor Statement
A safe harbor statement is a legal statement that companies use to protect themselves from liability when they make forward-looking statements. These statements are often included in earnings reports, presentations, and other public statements that companies make to investors and analysts.
A forward-looking statement is any statement that relates to the future and is not a statement of historical fact. This could include statements about future revenue, earnings, or growth prospects, as well as statements about product development, marketing plans, or other business initiatives.
Because these statements relate to the future and are subject to various risks and uncertainties, companies include safe harbor statements to protect themselves from potential liability. A typical safe harbor statement will include language such as "This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding our business strategy and expectations. Actual results could differ materially from those projected in the forward-looking statements."
By including a safe harbor statement, companies are able to protect themselves from potential liability if their forward-looking statements turn out to be incorrect or if events outside of their control cause their projections to fall short. However, companies must ensure that their forward-looking statements are made in good faith and are based on reasonable assumptions, and that the safe harbor statement is clear and specific about the risks and uncertainties involved.
In the United States, safe harbor statements are governed by the Private Securities Litigation Reform Act of 1995 (PSLRA). This law was passed in response to concerns about frivolous securities lawsuits and the impact they were having on the ability of companies to make forward-looking statements. The PSLRA provides a safe harbor for forward-looking statements made in good faith, as long as they are accompanied by meaningful cautionary statements that identify important factors that could cause actual results to differ materially from those in the forward-looking statements.
While safe harbor statements are primarily used by publicly traded companies in the United States, they may also be used by other types of organizations that make forward-looking statements, such as non-profits, government agencies, and educational institutions. In addition to the PSLRA, other laws and regulations may also govern the use of safe harbor statements in other countries.
It is important to note that safe harbor statements do not protect companies from liability for fraudulent or misleading statements. If a company makes a forward-looking statement that it knows or should have known is false or misleading, it could still be held liable for securities fraud or other violations of the law.
In conclusion, safe harbor statements are an important tool for companies to manage risk and provide transparency with investors and stakeholders when making forward-looking statements. They are governed by laws and regulations, such as the PSLRA in the United States, and must be made in good faith and based on reasonable assumptions. While safe harbor statements provide some protection from liability, companies must still ensure that their statements are accurate and not misleading.