Going Public with an IPO

Going Public with an IPO

Going Public with an IPOThe first decision for a company before it can go public is to decide if going public with an IPO is the best route. Once a company decides to go public, it faces a completely new set of rules and regulations unique to publicly held corporations. This commitment to go public must be established as it will involve the entire company to work together to tie up loose ends within its accounting, legal, product lines, services, customer service, etc.

Once a company decides to offer shares for sale in the public market, a registration statement must be made with the SEC (Securities & Exchange Commission). The SEC has a three-part mission: Protect investors; Maintain fair, orderly, and efficient markets; and Facilitate capital formation.
SOURCE: http://investor.gov/introduction-markets/role-sec

The statement registered with the SEC must be well crafted as the SEC could refuse or suspend an application at any time if it finds it misleading, incorrect or inaccurate. Upon filing, the company uses its underwriting syndicate to create a prospectus. It’s this group that will purchase and resell the investment security on behalf of the company.

Within the prospectus, a potential buyer will read the following, called a Red Herring Prospectus because it’s written in red:

“A Registration Statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. Information contained herein is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective.”

https://en.wikipedia.org/wiki/Red_herring_prospectus

Within several weeks, the SEC will reply to the registration with its comments. If unacceptable, the company must work to redraft or corrects its statements. Upon its approval, the SEC will rule the registration effective. Once in possession of the approved registration, the company and it’s underwriters will set out to finalize a price and the final number of shares it plans to offer.

During the SEC review and acceptance, the company will work with its investment banker and underwriter to prepare a road show. During this time, the company sets up meeting with potential investors and travels across the country sharing the company vision, strategy and financial goals. It garners interest based on the prospectus which outlines the value for the company based on these corporate goals and outlook.

Investors will receive a copy of the final prospectus upon acceptance by the SEC. This sets the final price, shares, and any amendments made to the filing. The offering will close when the company secures the amount it planned to raise and the company issues stock certificates for the money raised during the round of financing.

If you’re considering raising money, there are other options to explore. However, understanding the significance and weight of going public with an IPO is an important first step as you grow your business.

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