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.
IPO Advantages
- 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
IPO Disadvantages
- 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
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
