Going Public Introduction
While going public offers many benefits it also comes with risks and regulations with which can become complicated, and compliance can be expensive. Despite the risks and costs, the U.S. capital markets remain one of the most attractive sources of financing in the world. Going public is a complicated & intricate procedure, and it is important to have experienced attorneys help your company through the process and the SEC and FINRA.
In order for your company to go public there are two main processes that must be completed:
1. registering the company with the SEC and
2. completing the IPO under the Securities Act of 1933 (the “1933 Act”). The 1933 Act is the primary statute governing IPOs. It sets forth certain requirements and procedures that are applicable to all IPOs. The Securities Exchange Act of 1934 (the “1934 Act”) governs registration statements and other documents filed by issuers with the SEC. The first step in going public is filing a registration statement with the SEC.
The registration statement is a formal disclosure document that includes all of the information that will be filed and what it says about the company. The purpose of this document is to notify the SEC, potential investors, and others about the new company. The registration statement must include a description of the business, the products and services being offered, and the plans for the future.
The registration statement must also contain certain information about the company’s management and officers, their background and qualifications, the ownership of the company, and the financial condition of the company. In addition, the registration statement must include certain information regarding the company’s securities. It must describe the shares offered, how the shares are to be issued, the rights and obligations of the shareholders, and whether any of the shares are offered to be sold or offered only for delivery upon exercise of an option. This information is known as “the prospectus.” A prospectus is filed with the SEC at the same time as a registration statement.
The registration statement must be filed with the SEC within a specified period of time, depending on the company’s size and the amount of stock being offered. The SEC has a specific timeline for filing a registration statement with the SEC. The time frame varies depending on the company’s size and the number of shares to be issued. Companies that are smaller than $1 billion in assets may file a registration statement within 60 days after the company begins its operations. Companies with between $1 billion and $10 billion in assets must file their registration statement within one year from the date of the initial public offering
Companies with between $10 billion and $50 billion in assets must file their registration statement within two years from the date of the initial public offering. Companies with more than $50 billion in assets must file their registration statement within three years from the date of the initial public offering.
When a company files a registration statement with the SEC, it is referred to as an “IPO” or “initial public offering.” In a typical IPO, the company sells new shares to the general public. Once shares are sold to the public, they trade publicly for the first time. The sale of the shares to the public is known as the “IPO” and the person or organization that has sold the shares is known as the “underwriter.” The underwriter purchases shares of the stock at a specific price that has been set by the company. The underwriter is then in charge of selling the shares of stock to the public. Underwriters are typically large investment banks, such as Goldman Sachs, Morgan Stanley, Citigroup and Credit Suisse. Underwriters are required to deliver the stock to the company. At this point, the company becomes the issuer of the shares and the shares are listed on a public exchange.
Accuracy in the prospectus and registration statement is essential. Everything contained in the document must be 100% true. The prospectus is a disclosure document, not a sales document. A prospectus is a disclosure document. It is used by companies to disclose information about their business, products, finances and operations to the investing public. A company’s purpose in issuing a prospectus is to inform investors about the risks associated with buying the company’s stock and bonds. An accurate prospectus not only informs investors, it protects the issuer from later fraud claims by investors.
Companies who ignore this distinction often find themselves the target of an SEC investigation, with the potential for significant fines and sanctions.
The importance of hiring experienced securities counsel for the going public process cannot be overstated.
The Complete Going Public Handbook – Finance attorney Frederick Lipman untangles the complexities of the going public process to describe with insight and detail every step necessary for making a company publicly traded. Inside you will find the pros and cons of going public, the ins and outs of an IPO, advice for developing a five-year advance plan, tips for attracting investment bankers, and much more.
The Ernst & Young Guide to the IPO Value Journey – A revised and updated edition of The Ernst & Young Guide to Taking Your Company Public, this practical book addresses a topic that will have significant impact on company operations in the years to come. It’s packed with essential information on the process of taking your company public.
Fundamentals of Corporate Finance – Text for a first courses in business or corporate finance assumes only passing familiarity with basic accounting and knowledge of basic algebra, and provides a unified treatment of financial management that emphasizes the basic logic of financial decision making and the role of the financial manager as decision maker. Annotation copyright Book News, Inc. Portland, Or
The Ernst & Young Business Plan Guide – A favorite of SECLaw.com visitors, according to the publisher this book is “designed to assist the reader in creating a financial, organizational and operational blueprint for success. Developed for anyone starting a new business or expanding one already in existence, it contains step-by-step instructions for devising a solid business plan.” The book includes a sample business plan, but also explanations as to why certiain information should be included, and suggestions as to how to present the information.
Introduction to the Federal Securities Laws – It all starts here. A primer on the federal securities laws.
Internet Offerings – is Spring Street the Start of Something Big? – IPOs on the Internet. Not much has changed since Spring Street did it back in the early days.
Q&A: Small Business and the SEC – How to take your small business public.
IPO Overview – What is an initial public offering, what are the basic steps – a great primer from Fidelity Investments.
Corporate Web Sites and Securities Offerings – Corporate Web sites can raise important issues under the federal securities laws. Issuers and others easily can run afoul of the securities laws with even the best of intentions. These risks increase during a registered securities offering. Worse yet, securities regulators have not released global guidelines.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.