Direct Public Offerings 101

Direct Public Offerings 101

Many private companies are unable to locate an underwriter prior to going public.  A direct public offering (“Direct Public Offering”) provides a viable solution to this dilemma.  A Direct Public Offering allows a company to sell its shares directly to investors without the use of an underwriter.  With a Direct Public Offering, the company files a registration statement with the Securities and Exchange Commission (“SEC”) to register a securities offering under the Securities Act of 1933, as amended (the “Securities Act”).

Typically, in going public transaction Form S-1 (”S-1”) registration statements are used.  A company can use a Form S-1 registration statement to register securities on its own behalf in an initial public offering, register securities on behalf of its selling security holders in a secondary offering or register securities on its own behalf as well as for selling security holders.

Using a Direct Public Offering to Go Public

All issuers qualify to file a registration statement on Form S-1 and it is the most common registration statement form used in going public transactions.  Filing a registration statement in connection with a going public transaction eliminates many of the risks and expenses associated with reverse mergers including among other things, undisclosed liabilities, sketchy corporate records, DTC Chills, Global Locks and SEC trading suspensions.

SEC Review of Registration Statements in Direct Public Offerings & Going Public Transactions

For public companies and private companies going public, an SEC review of the Form S-1 registration statement is common.  Upon review, the SEC may render comments which the company must address by filing amendments to its registration statement. When all of the SEC comments have been answered to the satisfaction of the SEC, it will declare the registration statement effective.

Additional Steps of Going Public in Direct Public Offerings

Filing an S-1 registration statement under any of the above scenarios will not complete the going public transaction.  A registration statement alone does not cause an issuer’s securities to become publicly traded and it will not result in the assignment of a ticker symbol.  The registration statement will cause the company to become subject to the SEC’s reporting requirements.  After satisfying the SEC’s requirements, the issuer must comply with the requirements of the Financial Industry Regulatory Authority (“FINRA”) to obtain its ticker symbol.

 The Last Step for Issuers Going Public – Getting a Ticker Symbol

Generally, FINRA requires that the issuer have at least 25 shareholders who hold either registered shares or with respect to Pink Sheet listed issuers, shares that have been held by non-affiliate investors for twelve months.  The majority of the 25 holders should have paid cash consideration for their shares.

Float Requirements in Going Public Transactions

In order to obtain a ticker symbol, a company must meet FINRA’s public float requirements.  The company’s outstanding shares held by its non-affiliates in the aggregate should represent at least 10% of the issuer’s outstanding securities.  These shares become what is often referred to as the “Float.”  The Float must also be somewhat evenly distributed without significant concentration in one or a few shareholders.  These shares should be unrestricted securities either because the shares were registered with the SEC or exempt from registration.

Sponsoring Market Maker & Form 211

FINRA requires companies to locate a sponsoring market maker to submit a Form 211 (“211”), on its behalf.  Upon the sponsoring market maker filing a 211, FINRA will conduct a review and provide comments to the sponsoring market maker which the company and its securities attorney must address.  Upon receipt of confirmation that all comments have been answered satisfactorily, a ticker symbol is assigned and the company’s securities are publicly traded.

By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks associated with reverse merger transactions including incomplete and sloppy records, pending lawsuits and other liabilities including securities violations.  For a company seeking public company status a direct public offering using a registration statement filing with the SEC offers a cost and time effective solution.

For further information about direct public offerings, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com.  This memorandum about direct public offerings is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship.  For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or by email a info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com