Going Public: Pros and Cons- Going Public Lawyers

A Going Public Lawyer is an important part of the overall going public process.   A Going Public Lawyer in the beginning of the process assists the issuer in structuring its transaction the most time and cost effective way to obtain public company status.  Changes resulting from the JOBS Act, made going public transactions an appealing option for private companies seeking to raise capital. Rule 506(c) allows companies to conduct private placements prior to going public to offset their going public costs. In going public transactions, these privately placed shares are registered on Form S-1 and become the public float.  A Going Public Lawyer in a Rule 506 offering assists the issuer with verification of investors and filing its Form D.

One traditional method of going public remains an Initial Public Offering (“IPO”).  The  IPO is rarely used by small companies as most will not  meet the eligibility requirements to trade on a national securities exchange such as the New York Stock Exchange (“NYSE”) Euronext, NASDAQ, or NYSE MKT. Moreover, the traditional IPO process involves locating an underwriter to sell the company’s offering something most small companies are not able to accomplish.   In an IPO, the Going Public Lawyer provides the legal opinion for the Form S-1 registration statement and transfer agent.

For the many private companies seeking to public company status that don’t qualify for listing on a national stock exchange, the OTC Markets offers several alternatives that provide the issuer with the benefits public company status offers.

Quotation on the OTC Markets & the Going Public Lawyer

Choosing the method it feels is most suitable, a private company will typically seek to have its shares quoted on the OTC Markets OTCQB or OTCQX if it is subject to the Exchange Act’s reporting requirements.  If not, it will seek to list on the OTCMarkets OTCPink Sheets.  Either way, the private company going public must locate a sponsoring market maker to submit a Form 211 to the  Financial Industry Regulatory Authority (“FINRA”).    The Company’s Going Public Lawyer provides the opinion required by FINRA for a ticker symbol assignment.

Traditional Initial Public Offerings & the Going Public Lawyer

In a traditional initial public offering (“IPO”), a private company will engage an underwriter to sell shares to the public as part of its going public transaction.  In order to do so it must file a registration statement under the Securities Act with the SEC. The SEC will review and render comments in most instances. Once the SEC has completed its review, and all comments have been answered to its satisfaction, the company will file a request for acceleration to allow the registration statement to be deemed effective quickly.  The issuer’s Going Public Lawyer is typically the point person for the SEC’s comments to the registration statement.

Once the SEC files a Notice of Effectiveness, the shares registered can be offered to the public. Companies that qualify will seek to  have their shares listed on a national securities exchange, such as the NYSE Euronext, NASDAQ, NYSE and NYSE MKT.

Resale Registration Statements & the Going Public Lawyer

One method of going public is through a selling shareholder or resale registration statement that registers securities held by the company’s existing stockholders. These shares are typically issued in exempt offerings under Regulation D, Rule 504 or Rule 506. Under a selling shareholders registration statement, the private company will file a Form S-1 with the SEC. Once the S-1 is declared effective, the private company can file its Form 211 with FINRA. The selling shareholder registration statement allows the stockholders whose shares were registered to sell them publicly.  Upon effectiveness of the Form S-1, the private company becomes subject to the reporting requirements of the Exchange Act under Section 15(d). When the stock is assigned a ticker and begins to trade, the selling shareholders may sell their shares publicly. Exceptions to that are officers, directors, and affiliates, who are bound by Rules 144′s volume limitations, which stipulates that those persons – individually, not as a group-may sell no more than the equivalent of 1% of the shares outstanding every quarter.   The Going Public Lawyer provides the legal opinion required by the Selling Stockholder registration statement and transfer agent for sales under Rule 144.

Direct Public Offerings & the Going Public Lawyer

Like an IPO, a direct public offering involves the filing of a registration statement with the SEC. The direct public offering is conduct by the company on its own behalf without the assistance of an underwriter.  Like a resale registration statement, Form S-1 is typically used. Upon the SEC declaring the registration statement effective, the Company may sell its shares to the public, thereby raising capital that can be used in a variety of ways to help the company grow its business. Unlike a traditional IPO, in a direct public offering using a company registration statement an underwriter will not be engaged; instead, the company’s officers and directors will offer its shares, or the securities registered will be offered and sold through a placement agent such as a FINRA licensed broker-dealer. As with a selling shareholders registration statement, the effectiveness of the company registration statement will subject the company to the reporting requirements of the Exchange Act.  As stated above, the Going Public Lawyer provides the legal opinion required by the SEC and servces as the point person for SEC comments.

The Form 10 Registration Statement & the Going Public Lawyer

Unlike a traditional IPO, selling shareholders or direct public offering registration statement, a Form 10 registration is a registration statement under the Exchange Act,  rather than the Securities Act.

Form 10 is the most recognized registration statement under the Exchange Act. It is frequently used by issuers voluntarily seeking to file reports with the SEC. It is the general form used by a domestic issuer for registration of a class of securities pursuant to Section 12(b) or (g) of the Exchange Act when no other registration statement form is prescribed. Unlike a selling shareholders or company registration statement under the Securities Act, a Form 10 registration statement automatically becomes effective 60 days after it is filed, whether the SEC has completed the comment process or not. After this 60 day period, the issuer’s reporting obligations under the Exchange Act begin.

A Form 10 registration statement registers a class of securities and not a securities offering.  As a result, an issuer that goes public using a Form 10 registration statement, must have shareholders able to rely upon Rule 144 for the resale of their shares in order to create free trading stock.

If you are going to engage in a going public transactions under any of the above methods, we can assist you in your transaction.  We are an experienced securities law firm that can provide you with a skilled Going Public Lawyer familiar with going public transactions.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit  www.securitieslawyer101.com.   This securities law blog post 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. 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 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com