Form S-1 Going Public Bootcamp – Regulation A – Form S-1

The process of “going public” with a Form S-1 registration statement is complex and at times precarious.  While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar.   It is important for issuers to have an experienced securities attorney to help navigate through the process and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Authority (“FINRA”) & Depository Trust Company (“DTC”).  Upon completion of a going public transaction, the company is subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (“Securities Act”) and Securities Exchange Act of 1934, as amended (“Exchange Act”).

The process of “going public” with a Form S-1 registration statement is complex and at times precarious.  While going public offers many benefits it also comes with risks and quantities of regulations with which issuers must become familiar.   It is important for issuers to have an experienced securities attorney to help navigate through the process and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Authority (“FINRA”) & Depository Trust Company (“DTC”).  Upon completion of a going public transaction, the company is subject to the regulations that apply to public companies, including those of the Securities Act of 1933, as amended (“Securities Act”) and Securities Exchange Act of 1934, as amended (“Exchange Act”).

This blog post addresses common questions we receive about the going public process using Form S-1.

Q. What does it mean for a company to Go Public with Form S-1?

A. Going public often refers to the process of a company filing a registration statement with the SEC to register its securities and become an SEC reporting company.  Other times going public may mean the filing a Form 211 with FINRA to obtain a ticker symbol for quotation on the OTC Markets OTC Pink Sheets without filing a registration statement with the SEC.

Q. Why do companies Go Public?

A. Most companies go public to raise money.  It is much easier for a public company to locate capital than it is for a private company.  Funds raised in going public transactions can be used for working capital, research and development, retiring existing indebtedness, acquiring other companies or businesses or paying suppliers.

Q. What are other advantages of Going Public?

A. Numerous additional benefits come with being publicly traded including:

  • Once a going public transaction is complete, the company will be able to use its common stock as a form of currency and as collateral for loans;
  • going public creates value for an issuer’s securities;
  • going public also creates liquidity for existing and future investors, and provides an exit strategy for shareholders and/or investors;
  • public companies have greater visibility than private companies.  It is easier to build recognition of a public company than a private one.  Publicly traded companies are often promoted and gain publicity from their status as a public company.  Further, the media has greater economic incentive to provide coverage of matters concerning public companies than private companies because there are more shareholders and investors seeking information about the company;
  • going public may allow a private company to attract more qualified employees and key personnel, such as officers and directors because it allows the company’s management and employees to share in its growth and success through stock options and other equity-based compensation; and
  • there is a certain amount of prestige associated with public company status or service to a public company.

Q. What are the disadvantages of Going Public?

A. The disadvantages to going public include:

  • Going public requires management to answer to shareholders and give up a certain amount of their control over company matters;
  • Going public is expensive and staying public is expensive.  Legal, accounting and compliance costs are significant and these costs will have to be paid regardless of whether a company raises capital;
  • After a going public transaction, a newly public company will incur higher costs as a public company, including auditing and legal expenses and costs of compliance with the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”);
  • Public companies are subject to more scrutiny than private companies.  Once a company becomes public, certain information must be disclosed to the public, such as executive compensation, financial information, previous violations of the securities and other laws and material agreements must be disclosed.  Public companies operate under close scrutiny as well as oversight;
  • SEC reporting companies must comply with reporting requirements under the Exchange Act as soon as their going public transaction is complete.  Complying with these reporting requirements is costly and time consuming for management; and
  • Going public also exposes the company and its management to liability for false or misleading statements in filings and reports filed with the SEC.

Q. What is the difference between filing a registration statement under the Securities Act and filing a registration statement under the Exchange Act in a Going Public transaction?

A. Filing a registration statement under the Securities Act registers an offering of securities.  Shares registered by the issuer or on behalf of  its selling shareholders who are not affiliates of the issuer generally are unrestricted securities.  Filing a registration statement under the Exchange Act registers a class of securities such as common stock.  Registration under the Exchange Act  such as on Form 10 does not register a securities offering and does not create unrestricted securities.

Q. What is a Direct Public Offering?

A. A direct public offering is an offering conducted by a company on its own behalf without an underwriter.

Q. Can a Direct Public Offering be used in a Going Public transaction?

A. Yes, direct public offerings are often used in conjunction with going public transactions.

Q. Do I have to file a registration statement with the SEC if I conduct a Direct Public Offering?

A. Not necessarily.  A direct public offering can be structured for a listing on the OTC Markets OTC Pink sheets and it can involve a private offering rather than an offering subject to an SEC registration statement.

Q. What is a Reverse Merger?

A. A reverse merger is a transaction in which a private company merges into or is acquired by an existing public company.

Q. Should I use a Reverse Merger in my Going Public Transaction?

A. Probably not.  Reverse mergers are often vehicles for fraud and new rules impact reverse merger transactions.  Most often if done properly, reverse mergers cost more and take longer than filing a registration statement with the SEC in a going public transaction.

Q. Why do some securities attorneys say I should use a Reverse Merger in my Going Public Transaction?

A. Often securities lawyers who recommend reverse mergers manufacture shells.  They make a substantial amount of money selling their own public shells.

For more information about going public, securities law or our other services please contact a Securities Attorney at Hamilton & Associates Law Group, P.A. 01 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected].   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 Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the NASDAQ Stock Market, the NYSE MKT or over-the-counter market, such as the OTC Pink, OTCQB and OTCQX. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation ARegulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1Form F-1,  Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-QForm 10-K and Form 8-KForm 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India and throughout the U.S.