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Simple English definitions for legal terms
risk factors
Read a random definition: punitive
A quick definition of risk factors:
Term: Risk factors
Definition: Risk factors are things that could go wrong and hurt a company's business. Companies have to talk about these risks in a special document called a Form 10-K. They have to write the risks in a way that people can understand and put them in groups. Companies can't just write general risks, they have to be specific to their business. For example, Apple said that the COVID-19 pandemic, competition, and getting new products are risks for their business.
A more thorough explanation:
Risk factors refer to Item 105 of Regulation S-K which requires companies to discuss material risks to their operations. This means that companies must identify and explain potential risks that could negatively impact their business. The risks must be written in plain English and organized logically with relevant headings. Companies should avoid including generic risks that do not apply specifically to their business.
- Apple's business, results of operations, financial condition, and stock price have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.
- Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition, and growth.
- Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.
- To remain competitive and stimulate customer demand, the Company must successfully manage frequent introductions and transitions of products and services.
- The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
- The Company’s future performance depends in part on support from third-party software developers.
These examples illustrate how companies must identify and explain potential risks that could negatively impact their business. For example, Apple identifies the COVID-19 pandemic as a risk factor that has already affected their business and could continue to do so in the future. They also identify competition and technological change as potential risks that could impact their ability to compete effectively in the market. By identifying and explaining these risks, companies can help investors make informed decisions about whether to invest in their business.