Benefits of Direct Public Offerings

Raising Capital

While going public offers many benefits, it also comes with risks and a large number of regulations with which issuers must become familiar. Despite the risks, the U.S. capital markets remain one of the most attractive sources of financing in the world.

Going public is a complicated and intricate procedure. So, it is essential to have a securities attorney with experience in going-public transactions to help your company navigate the process and deal with the Securities & Exchange Commission (“SEC”), Financial Regulatory Industry Authority (“FINRA”), and Depository Trust Company (“DTC”).

Initial Public Offering-IPO v Direct Public Offering-DPO

In an initial public offering (“IPO”), the company offers and sells stock to the public through an underwriter for the first time. When a company cannot locate an underwriter, it may sell its own shares using a direct public offering (“DPO“). Any sales of common stock by the investors in the IPO or DPO are called secondary sales or a secondary offering.

Offers and sales of securities in an IPO are regulated by three primary federal laws: the Securities Act of 1933, the Exchange Act of 1934, and the Sarbanes Oxley Act of 2002. These laws were created to protect investors.

Benefits of Going Public & Public Company Status

A few of the benefits of public company status include:

  • More access to capital;
  • Increased liquidity;
  • Exit strategy for investors and existing shareholders;
  • Ability to use the stock as a currency;
  • Capital for future acquisitions; and
  • The prestige of public company status.

Drawbacks of Going Public

Going Public and selling shares in an IPO is not for every company. While there are significant benefits of public company status, there may be drawbacks for some companies. Drawbacks of going public and public company status include:

Going public is geared towards large companies and may not be a suitable strategy for smaller businesses under all scenarios. The going public process begins with the company’s management and its board of directors. The board of directors should consider the advantages and disadvantages of going public and the company’s needs. In other words, the board of directors must determine if going public is in the best interest of the company and its shareholders.

If the board approves the going-public transaction, then management will select the going-public team, which will include a going-public securities attorney and an accounting firm registered with the Public Company Accounting and Oversight Board (“PCAOB”). The company will also require a market maker to sponsor its application for a stock ticker symbol. Once the going public team is engaged, the company should begin preparing its disclosures for the registration statement. Form S-1 is the most commonly used registration statement and can be used for an IPO or DPO.

Form S-1 contains two parts. One part is the prospectus, which is the document presented to investors. The prospectus is both an offering document and a disclosure document. The prospectus includes a detailed description of the company’s securities, business, and management. The prospectus disclosures include management’s compensation and any transactions between the company and management; the names and amounts of shareholdings of the company’s principal shareholders; audited financial statements; a discussion of the company’s operations and financial condition; information on the intended use of the offering proceeds; and a description of the company’s dividend policy, capitalization and underwriting agreement if the company is conducting its initial public offering.

The company’s securities attorney should perform a detailed due diligence investigation of the company’s management, financial condition, competitive position, performance, and business. Once the disclosures are drafted, the Form S-1 will be presented to the SEC for its approval or comments. The SEC often provides comments requiring the issuer to give responses and an amendment to its Form S-1. Once the SEC has approved the Form S-1, the registration statement is declared effective.

Reverse Merger – Alternative Public Offering

Some companies go public in a reverse merger. A reverse merger is a way for a private company to go public by merging into a pre-existing public company. The existing public company is usually a shell company with no assets or liabilities. In a reverse merger, the public company assumes the business and operations of the private company.

Reverse mergers pose significant risks to companies seeking to go public. Often, shell companies are hijacked and have significant liabilities. The SEC and FINRA have issued multiple investor alerts regarding reverse mergers. Locating a legitimate public shell company and arranging a reverse merger is difficult. It is recommended that the company engage an experienced securities attorney to assist in the reverse merger due diligence process.


There are many benefits associated with going public and transitioning from a privately held company into a publicly traded company. An IPO is one method of going public but is rarely an option for small companies. A DPO provides an appealing option for small companies seeking public company status. Reverse mergers pose significant risks and are more costly than an IPO or DPO.

Going public and public company status offers an opportunity to raise capital, increase liquidity and gain public recognition. It is critical that companies seeking to go public strictly comply with the laws that govern the going public process and public company status. When a company decides to go public, it should consult with a qualified going-public securities attorney to weigh the benefits and risks of public company status and the most beneficial structure for going public.


For further information about this securities law blog, please contact Brenda Hamilton, Securities Attorney, at 200 E. Palmetto Park Rd, Suite 103, 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 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 Attorneys
Brenda Hamilton, Securities Attorney
200 E. Palmetto Park Rd., Suite 103
Boca Raton, Florida 33432
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