Is Your Company Ready to Go Public?

Full Transcript

Welcome to Securities Lawyer 101, the podcast from Hamilton and Associates Law Group in Boca Raton, Florida. Before any company files a registration statement or signs a merger agreement, it should answer a simpler question. Are we actually ready to be public? Today we'll walk through the readiness checklist.

Start with your financial statements. A public company needs financial statements audited by an accounting firm registered with the Public Company Accounting Oversight Board, the PCAOB. If your books have only been reviewed, or audited by a firm that isn't PCAOB registered, that work has to happen first, and it often takes longer than founders expect. Smaller companies must provide two years of audited financials for their first registration statement, plus reviewed interim numbers.

Next, look at your capitalization table. Who owns what? Are there old promissory notes, verbal promises of equity, convertible instruments with unusual terms, or shares issued without proper board approval? Every one of these becomes a disclosure problem, and some can stop a deal entirely. Cleaning up the cap table before you go public is far easier than explaining it afterward.

Third, review your corporate records. Your articles of incorporation, bylaws, board minutes, and shareholder approvals should be complete and consistent. Securities counsel and auditors will ask for them, and gaps slow everything down.

Fourth, think about governance. If you plan to list on Nasdaq or the New York Stock Exchange, you'll generally need independent directors and an audit committee. Finding qualified independent directors takes time. Even companies headed to the O-T-C Markets benefit from building a real board early.

Fifth, consider your internal controls. Public companies must maintain disclosure controls and internal control over financial reporting, and management has to report on them. If your accounting runs through one person and a spreadsheet, that needs to change.

Sixth, be realistic about cost. Going public has an upfront price, but staying public has an annual one: audits, legal fees, filing agents, transfer agent fees, investor relations, and insurance for directors and officers. Build that into your budget before you commit.

Finally, ask whether you have a story public investors will understand. What does the company do, why does it need capital, and what will it do with the money? Your registration statement or merger disclosure will have to answer those questions clearly and accurately.

The good news is that the rules offer some relief for smaller and newer companies, including scaled disclosure for smaller reporting companies and certain accommodations for emerging growth companies. Knowing which of those apply to you can shape your timeline and budget.

Readiness also depends on whether the company can produce reliable disclosure on demand. Public-company reporting is not an annual writing exercise. Material contracts, financing terms, customer concentration, related-party transactions, legal proceedings, cybersecurity events, and changes in management may all require prompt analysis. A company needs a process for moving information from the people who know it to the people responsible for disclosure. If that process depends entirely on the chief executive remembering to call counsel, the system is fragile.

Management should also test the company's calendar. Can the finance team close the books quickly enough for quarterly reporting? Can the auditors obtain supporting records without chasing missing documents? Can the board review drafts and meet on short notice? Are officers prepared to certify the reports? A company that struggles to produce accurate monthly information may not be ready for the recurring deadlines of the public markets.

Finally, readiness is not the same as enthusiasm. A strong growth story cannot substitute for clean records, sufficient capital, and a management team willing to operate under scrutiny. Before committing, prepare a twelve-to-eighteen-month budget that covers the transaction and the first year of reporting. Assign an owner to every workstream. Then run a mock diligence review using the same records that auditors, counsel, investors, and regulators will request. The gaps found in that exercise are usually cheaper to fix before a filing becomes public.

A practical readiness review should end with a go, pause, or no-go decision. Go means the company has the records, people, funding, and calendar to begin. Pause means the objective may be sound but specific gaps must be closed first. No-go means the expected benefits do not justify the cost, disclosure burden, or management distraction. That conclusion can change later. The value of the review is avoiding a public process before the company can support it.

That's it for this episode. If you'd like help assessing whether your company is ready to go public, call Hamilton and Associates Law Group at five six one, four one six, eight nine five six, or visit Securities Lawyer 101 dot com to speak with a securities attorney. This podcast is for general information only. It is not legal advice, and listening does not create an attorney-client relationship. Securities rules change, so speak with qualified counsel about your specific situation.