Taking a Company Public
What is an Initial Public Offering (IPO)?
Under U.S. federal securities law, a company cannot raise capital or offer shares of its stock to the public unless the offering is registered with the Securities and Exchange Commission (SEC) or an exemption from registration is available. An IPO denotes the first time that a company is offering its securities to the public. Before its IPO, a company is considered privately owned or closely held, usually with a small number of early investors like friends and family, angel investors, and venture capitalists. As a public company, a percentage of your securities will be held by public investors and your stock will trade on a national securities exchange like NASDAQ or NYSE or it will be quoted on the over-the-counter markets like OTC Pink, OTCQB or OTCQX.
IPO Pros and Cons
There are several reasons an organization may want to “go public,” but the primary benefit is to access dynamic financing opportunities, raise capital for further development, repay debts, or compensate early investors by creating liquidity in the company’s stock.
- A larger and more diverse group of investors
- Greater liquidity and long-term financial stability
- Increased exposure, status, and public perception
- The ability to attract top-tier talent by offering employee equity options
- Greater opportunity for growth and acquisition and the ability to use share capital as currency for acquisitions
- Expanded disclosure and compliance requirements
- Potential loss of control or influence
- Increased expenses and operating costs
- Higher pressure to meet goals and litigation risk
- Public information may benefit competitors
President, Gelband & Company
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IPO Filing Process and Review
The IPO process begins with the filing of a registration statement. For domestic issuers this registration statement is on Form S-1 and for foreign private issuers, this registration statement is on Form F-1. The registration statement is the one place where all information that a reasonable investor would want to know is available and it is required under the Securities Act of 1933. A registration statement provides investors with financial information about the company, the specifics of the offering, risk factors, beneficial ownership disclosure, executive compensation disclosure and much more. The registration statement also describes the intended use for the capital raised in the IPO and details regarding the company’s business model and past performance.
Once all the principal offering documents are drafted, they will be filed with the SEC for review. Afterward, a company will need to complete an initial listing application with the desired exchange. During this timeframe, the company will need to establish several key factors, including the offering size, the price per share, and investor interest. This period of due diligence allows the parties involved to make sure all the relevant information is included and properly disclosed. Once the company satisfies all of the SEC staff’s comments to the registration statement, an effective date to offer public stock will be scheduled. This effectively completes the IPO process and classifies your company as public reporting company.
Another way to take your company public is to use equity crowdfunding through a Regulation A offering. See Equity Crowdfunding Lawyers to learn more.
While business professionals sometimes believe they are the best equipped to deal with the intricate details of explaining their industry, these are complicated legal filings. Omissions or inaccurate financial reporting can not only be detrimental to your IPO filing, it can also result in serious harm to a business’s reputation and exposure to further regulatory investigation. IPO requirements are meant to protect investors as well as the companies involved, and should always be handled by a meticulous legal professional with significant experience shepherding companies through initial public offerings.
Alternative Public Offerings
IPO’s are by no means the only avenue for companies looking to go public. By combining a reverse merger into a public shell company with a private investment of public equity (PIPE), a company can pursue an Alternative Public Offering (APO) that has many of the benefits, without some of the traps involved with a traditional offering. By completing a reverse merger, a private firm essentially becomes public by combining with a shell company that has no actual assets or liabilities. When the two merge, the combined company can then change its name and offer shares under the original company’s name. The inclusion of a concurrent PIPE financing allows the company to sell its securities in a privately negotiated transaction to raise capital at the time of the reverse merger. Securities sold in a PIPE are typically sold at a discount to the market price of the company’s stock since the securities sold in the PIPE are not registered securities.
An APO offers a faster option than an IPO, since regulatory review of the disclosure occurs after the transaction is consummated, if at all. PIPE investors are often interested in APOs because the shares are available at a discounted rate compared to the projected market value.
While some companies may benefit from an APO, there are still several restrictions and SEC regulatory factors to consider. An APO, like an IPO, requires audited financial statements, Sarbanes–Oxley or SOX compliance forms, 10Qs, and 8Ks. By partnering with knowledgeable APO lawyers, companies can evaluate their situation and pursue the best option from day one.
What You Need to Know About Exchanges
One of the main goals of companies going public is gaining access to exchanges, where stock shares can be traded, sold, and tracked. There are several distinct stock exchanges around the world, with the NYSE and Nasdaq as the largest in the Unites States. These exchanges act as the marketplace for companies where the price of their stock is largely dictated by the principals of supply and demand. Depending on the type of industry and the goals of an institution, how a company is admitted to an exchange can have a large influence on its success.
When newly formed public companies enter exchanges and begin trading, there will be several things to consider and both SEC and exchange regulations to comply with. These considerations include the initial application for inclusion, compliance with exchange listing requirements, and develop long-term capital strategies that leverage a public company’s exchange listing. Some of the things that exchange listed companies should consider discussing with a capable IPO attorney are shelf registration statements, at-the-market offerings and equity lines of credit. These options can be utilized to facilitate a public company’s capital raising needs.
Importance of an IPO Lawyer
Before a company begins the rigorous IPO process, it should work with a skilled IPO attorney from the start to make sure that it is complying with all current state and federal law, and that there are no prevailing obligations or legal impediments that could prevent a successful IPO filing. It is also imperative to protect your IPO from negatively impacting your company’s ongoing work or existing agreements. To effectively address the entire process of taking a company public, strategically minded IPO attorneys can act as a resource so your organization makes carefully measured decisions and no unexpected issues arise.
We Can Bring You Public
Our securities and IPO lawyers are routinely involved in traditional IPOs, APOs and other going public transactions and routinely handle all the legal procedures related to going public for numerous domestic and international clients, including:
- Negotiation of engagement agreement and underwriting agreements with investment banks
- Stock exchange listings
- 20-F Registration Statements for Canadian and other foreign companies
- Form 10 Registration Statements
- OTCQX listing and compliance
- Regulation A offerings
- Proper SEC regulatory and legal compliance regarding disclosure, governance, and structure
- Implementation of equity incentive plans, dividend reinvestment plans and direct stock purchases
Reach Out to Bevilacqua PLLC
To transform your private company to a publicly traded entity, the first step is to contact Bevilacqua PLLC. We believe in long-lasting partnerships and our assistance does not end with a successful IPO. Our highly skilled business lawyers represent a wide array of clients throughout the U.S. and across the globe, providing excellent service, sophisticated counsel, and a deep understanding of the issues affecting them and their respective markets.
Call us at (202) 869-0888 or online to schedule an appointment with our team.