Disclosure Statement

What is Disclosure Statement?

Disclosure Statement is an official document forming part of the list of documents issued by the person, an organization, or the government, contains a various key and relevant information in a non-technical language for the communication of terms of contracts to other parties or contractee, generally an average person.

Explanation

In simple terms, disclosure indicates explaining or making information public to others. So, the disclosure statement could be a written or a verbal statement delineating various information required or supposed to be expressed. But, in general parlance, it refers to a document issued by an organization stating different facts and terms. For instance, if a financial transaction takes place with an organization and people at large, there are many terms and conditions mentioned in the paper which could not be understood by a layman. These are essential terms concerning the contract entered between both the parties.

Disclosure-Statement

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For eg:
Source: Disclosure Statement (wallstreetmojo.com)

Purpose of Disclosure Statement

The very purpose of the disclosure statement is to transfer the knowledge of crucial terminologies, terms and conditions, and exclusions and inclusions of the contract, etc. in a language comprehensible by even an amateur person. It compiles all the information and provides an assurance to the customer about the legality and security of the investment, insurance, mortgage, or various other transactions involved. The disclosure statement makes sure that everything is communicated to the customers as the organization perceives it, and there is no miscommunication or misinterpretation. It also outlines all the provisions regarding the contract and duties and responsibilities of the customers too.

Examples of Disclosure Statement

Example #1

A Typical loan statement such as a loan for students, mortgage, home loan, vehicle loan, property loan, etc. does include a disclosure statement. It includes the name of the organization, the party of the loans, approval, date, and place at which the document was signed, key terms such as tenure of the loan, interest charged, annual percentage rate, total processing fees, loan statement, prepaymentPrepaymentPaying off an expense or debt obligation before the due date is referred to as prepayment. Companies frequently pay for expenses, goods, and services in advance to reduce their financial burden and gain monetary rewards. Prepaid bills, rent, salary, credit card bills, income tax, and sales tax are all examples of prepayment.read more terms, and various other information including the terms regarding defaults in payment and so on.

Example #2

Another example could be an insurance contract between the insurer and the insured. Nowadays, the public at large is quite aware of the insurance, and it is well marketed by the government too. A disclosure statement of the insurance includes the title of the insurance along with various riders such as accidental insurance, health insurance, and so on. Also, it explains certain situations in which the insurance cover would not be in force. The conditions stated by the insurance company, such as genetic information, the exclusion clause, and nomination related details, are also a few important areas of the statement.

In case of investments in various securities or IRAs, the statement contains terms defining the entire contract, Rules, and regulations of investing, penalties, the regularity of funds, deposits, withdrawals, and so forth. Generally, it allows the person a noticeable time to read and refer the agreement to revert to the organization issuing it.

What is included?

A disclosure statement could consist of multiple topics, buy vary from contract to contract and types of agreement. Despite the dissimilarity, it mentions some terms which are quite familiar to almost all such statements. These are mentioned here.

  • Firstly, the statement indicates the title of the agreement or document, and generally, it is written in bold and capital letters. A few examples of claims could be Loan Agreement, Personal Disclosure Statement, etc.
  • The body contains the key terms and terminologies an organization intends to communicate to another party. It is filled with information in simple language and sometimes includes tables and charts as well.
  • It also contains the detail of the party responsible for its preparation along with the signature of the person who approved it from the organization’s point of view.
  • The date on which this is written or handed over is also an essential tenet of the contract. Generally, it is the point, after which both parties come under the legal scanner.
  • The name of the person with whom the contract is made, along with the relevant details such as the address, etc. are also included in this document.

All critical agreement, along with the brief purpose of the statement to be fulfilled, also finds a place here.

Uses

A disclosure statement is used in many ways, and generally, people are not even aware of it. For example, it could indicate the condition of the product when the sale has made, uses, or abuses covered in case of guarantee or warranty provided by an entity, ways or method in which service could be provided, etc. The government could also issue it for the general public for abiding of specific laws and regulations required to be followed in case of public safety or government resources. The standard procedures followed by society and organization to bring harmony should also be indicated via such a statement.

Advantages

First of all, it provides critical information to the user or the parties involved. It is expressed in the non-technical language so that the unfamiliarity of technical terms does not hinder the comprehension of the non-expert person. It is also considered as a part of the legal document and could be presented as evidence, in case there is a legal tussle.

Disadvantages

Even though it contains all the relevant details, key terms, important clauses affecting the contract, and other such information, sometimes, due to the volume of the details and way it is written, people tend to overlook it or generally don’t go through it in detail. By doing so, various essential points are missed, and it loses the very purpose of its issuance in the first place.

Conclusion

In summary, a disclosure statement contains essential and critical information about the terms and conditions, terminologies used, a main agreement between the parties, in clear and straightforward language. It forms the part of legal documents and could be referred back in case of litigation.

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This article has been a guide to the disclosure statement and its definition. Here we discuss purposes, examples, and what is included in the disclosure statement along with its uses, advantages, etc. You can learn more about financing from the following articles –

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