How Do I Register A Direct Public Offering?

Registration Statement - Securities Lawyer 101
Securities Lawyer 101 Blog

Private companies seeking to go public often use a direct public offering (“Direct Public Offering”).  Unlike an Initial Public Offering (“IPO”), a Direct Public Offering allows an issuer to sell its shares directly to investors without the use of an underwriter as  part of its going public transaction.

Registration Statements and Direct Public Offerings

A Direct Public Offering involves registering securities with the Securities and Exchange Commission (“SEC”)  on a Form S-1 (”S-1”) Registration Statement, either on its own behalf in a primary offering or on behalf of its selling security holders in a secondary offering.   Direct Public offerings are frequently used to raise capital in connection with going public transactions that involve filing a registration statement on Form S-1.

All issuers qualify to register securities on Form S-1 and it is the most commonly used registration statement in going public transactions. Using Form S-1 eliminates many of risks and costs of reverse mergers and public shell companies including DTC Chills, Global Locks and SEC trading suspensions.

Initial Public Offerings l Going Public Transactions

An IPO is used in a going public transaction where an investment banking firm assists the private company with raising capital by selling securities that have been registered under with the SEC.  Many private companies seeking to go public will not meet the income, asset, revenue or capital requirement standards that investment banking firms now have and will go public using a Direct Public Offering without the use of an underwriter.

Going Public Using a Direct Public Offering

Going public using a Direct Public Offering  involves an issuer filing a registrationstatement with the SEC, typically on Form S-1 that registers shares from the issuer’s treasury as well as shares on behalf of existing shareholders. Once the SEC declares the registration statement effective, the issuer then sells the registered securities directly to investors without the use of an underwriter.

SEC Review of Direct Public Offerings in Going Public Transactions

After a private company files its registration statement it is then subject to review by the SEC. After review of the registration statement the SEC may render comments which the issuer will 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.

Getting a Ticker Symbol in Going Public Transactions

Filing an S-1 registration statement under any of the above methods will not cause an issuer’s securities to become publicly traded and it will not result in the assignment of a ticker symbol. After satisfying all the requirements of the SEC, the issuer then must comply with the requirements of the Financial Industry Regulatory Authority (“FINRA”), in order to obtain its ticker symbol.

Rule 15c211 and Going Public Transactions

Generally, FINRA requires that the issuer have at least 35 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 35 holders must have paid cash consideration for their shares. Additionally, these shares in the aggregate should represent at least 10% of the issuer’s outstanding securities and are often referred to as the “Float.” The Float must also be somewhat evenly distributed without significant concentration in one or a few shareholders. FINRA requires the issuers to locate a sponsoring market maker to file a Form 211 (“211”). For issuers who are non-reporting, audited financial statements are not required in order to file a 211. After the sponsoring market maker files a 211, FINRA reviews the 211 and provides comments for the sponsor to address. Upon receipt of confirmation that all comments have been answered satisfactorily, a ticker symbol is assigned and the issuers’ securities are publicly traded.

By undertaking a Direct Public Offering, the issuer avoids many of the expenses andrisks associated with reverse merger transactions. Reverse mergers are rarely done properly and have therefore become vehicles of fraud. Shell companies often have incomplete and sloppy records, pending lawsuits and other liabilities including securities violations. A common misconception exists that a reverse merger is a fast and certain method of becoming publicly traded. If proper due diligence is undertaken more often than not, the shell company will not pass scrutiny of a qualified SEC lawyer.  Both FINRA and the SEC recently passed new requirements which create new hurdles for issuers who engage in reverse mergers with public shell companies.

Upon completion of the reverse merger, under recently passed Rule 6490, the issuer is subject to a full review by FINRA which generally takes at least 30 days. FINRA has complete discretion of whether to approve corporate changes related to reverse mergers. Issuers going public direct with a Direct Public Offering have fewer hurdles to obtaining electronic trading from Depository Trust Company (“DTC”). Reverse merger companies often encounter DTC chills and global locks because of prior unregistered securities issuances and the public shell’s prior management. Owners of private companies are learning the hard way that reverse mergers can be a costly mistake. In reality, it is quicker and more cost effective to undertake a Direct Public Offering than to do a reverse merger.

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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   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