Why Companies Going Public Need a Securities Lawyer

Securities Lawyer 101 - Smaller Reporting Companies

Securities Lawyer 101 Blog 

Companies going public must comply with federal and state securities laws. Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) and all state securities regulators require that all securities either be registered with the Securities and Exchange Commission (“SEC”) or be exempt from registration. The disclosures companies provide to investors allow them to tell their story but evolving rules and regulations apply to these disclosures even if a company is not publicly traded.

Even companies whose securities are not yet publicly traded must comply with federal and state securities laws.  Securities laws apply to the issuance of shares to founders as well as investors.  A securities lawyer can help the issuer comply with the various laws during the going public process.

Failure to consider these laws before going public can have significant consequences for the company and its management.  These consequences include SEC or other enforcement action and rescission to investors.

Raising capital by selling securities like going public is an intricate process, and it is important to have an experienced securities attorney to guide you through the rules and regulations that you will be subject to along the way.

Common matters for that issuers going public seek assistance from securities lawyers include but are not limited to the following:

♦ capital structure guidance and restructuring in preparation of the going public transaction;
♦ issuance of founders’ and managements’ shares;
♦ the offer of shares to family and friends to build a shareholder base and fund initial operations;
♦ drafting of promissory notes and other contracts for the offer and sale of securities;
♦  use of stock, warrants or options for advertising;
♦ use of stock, warrants or options as a gift;
♦ use stock, warrants or options to purchase inventory or products;
♦ the use of stock, warrants or options for manufacturing, production or other services; and
♦ the transfer, gift or sale of stock by existing stockholders.

In order to comply with applicable securities laws, both private and public companies should consult with a securities lawyer before offering and selling stock to seed shareholders or issuing shares to their founders. Once initial capital has been raised, the transition into operational status can begin,  and the private company can seek to raise additional capital by going public.

Generally, small private companies go public in one of three ways:

reverse merger with a public shell company;
♦ a direct listing on the OTC Pinks by filing a Form 211; or
♦ a direct public offering by filing a Form S-1 registration statement.

New regulations have made reverse mergers a less viable method of going public than in prior years.  Direct public offerings using Form S-1 registration statements provide issuers with transparency in their going public transaction.  Form S-1 is the most commonly used federal registration statement and the most common form used in direct public offerings. If you are interested in using a direct public offering in your company’s going public transactions, using a Form S-1 registration statement will provide you with flexibility and provide your shareholders and potential investors with transparency.

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