Any company can be a publicly traded company because there are no minimum asset or revenue regulations.
The reasons why every company should go public:
1) It offers liquidity to investors should the company start to fail.
2) It gives you the ability to use the stock as currency for acquisitions.
3) It gives the insiders and investors leverage at the time of the sale of the company.
4) Being public allows you to leverage the value of your company because the market capitalization (shares issued multiplied by the share price) are almost always a multiple of the balance sheet of that company.
IPO – when a company issues common stock or shares to the public for the first time. Typically an IPO issued by smaller companies seeking capital to expand. Assistance is obtained from an underwriting firm which helps determine what type of security to issue (common or preferred), best offering price and time to bring it to market.
IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:
§ Self distribution of stock
As an angel investor, you can invest in private companies and, with success, expect to better than double your money. Or, you can invest in public companies and, with equal success, expect to earn fifty-fold your investment in the same time period. The public company choice is always the wiser choice because it gives you liquidity should things go wrong and leverage should things go right.
How To in General:
One
1) File a registration statement with the SEC.
a. The statement must be accurate otherwise it could be suspended.
2) The SEC will perform a due diligence review of the company to make sure the statement is accurate.
3) Once they determine it is accurate, they will make the statement “effective” and you will be able to start selling shares.
Two - Underwriting
1) This process finds out who all of your prospective buyers are going to be.
2) Includes going through a group of investment bankers who will agree to purchase your company’s securities and then will resell them to the public.
3) The investment bankers will distribute the preliminary pamphlet to potential buyers so they can see what they are going to be buying.
4) Your company along with underwriters will go around to different potential buyers and do a marketing trip which includes explaining the business plan including the strategies and business objectives and to answer any questions involving your company going public
Three – I’m Still Standing
1) Stay in good standing with the underwriters – about a month after you have filed the registration statement, the Securities and Exchange Commission will give you written comments whether or not your registration statement is accurate.
2) The underwriters will then agree on a price for what they think your stock should sell for.
Where to Start
1) Research what goes into the registration statement.
2) The whole process of taking the company public takes about 3 months.
Cost
It costs a lot in up front out of pocket expense with figures ranging from $100,000 to $1.5 million. Total costs and expenses for smaller IPOs can reach 24 to 39 percent of the offering or total monies raised. But, the company’s net worth is increased and going public makes it easier to get money for growth.
Here’s a breakdown of the cost categories:
1. Underwriter costs
2. Professional costs
3. Up-front costs
4. Hidden and future costs
The Breakdown
The underwriter’s total fees typically range from 8% to 13%. This is the largest single cost item in a public offering. Legal expenses are typically the second largest – on an IPO of $8 million, costs can range between $30,000 and $175,000. Up-front costs can include stamps, paper, phone calls, special forms, entertainment, and office equipment, up-front costs include registration fees and printing. Printing costs typically range between $10,000 to $60,000.
How much time does it take?
It can be done in three to four months but if the market is overwhelmed it could take a year.
Key Steps in a Public Offering
1. Business Plans
a. Corporate master plan
b. Underwriter/legal/accounting plan
c. Condensed plan (executive summary)
d. Identify preprivate financing
2. Identification of Associates
a. Retain attorneys
b. Identify accountants
c. Identify underwriters
d. Establish preprivate financing
3. Forming the Corporation
a. File incorporation
b. Structure public offering
i. Identify founders
1. Percent founders
2. Percent preprivate
3. Percent private
4. Percent dilution
c. Negotiate underwriter’s letter of intent
d. Retain accountants
e. Negotiate outside agreements (patents, sales, licenses, consultants, royalties)
4. Private Placement Prepreparation
a. Approval of private placement documents
i. Corporation
ii. Underwriter
iii. State
5. Raising Private Funds
a. Establish escrow account
b. Solicit private monies
c. Prepreparation of public registration
d. Break private escrow
6. Audit and Registration Preparation
a. Complete initial audit
b. Retain printer
c. Retain transfer agent
d. Approval of SEC registration statement
i. Accountant
ii. Corporation
iii. Underwriter
7. Filings
a. Submit registration to SEC
b. File with blue-sky states
c. Clear with NASD
d. Initial comment letter from SEC
e. Print red herring
i. Send syndication indication request
ii. Distribute red herring
f. Second letter of comment and reply
g. Third letter (if needed)
h. SEC acceleration request (if needed)
8. Raising public financing
a. Arrange due diligence schedule
b. Sign underwriter’s agreement
c. Establish public escrow
d. Print prospectus
e. File with Nasdaq
f. Establish syndicate
g. Distribute prospectus
h. Conduct due diligence meetings
i. Place tombstones
j. Complete public offering
i. Legal and accounting opinions
ii. Closing papers
9. Post completion
a. Break escrow
i. Corporation, attorneys, accountants, bank, transfer agent, respective counsel
b. Establish market makers/quotation
i. Pink sheets
ii. Nasdaq
c. Establish trading
d. File 8-k
Also …
You can use a public company for estate planning purposes to pass on assets to heirs – there is a certain amount of cache to being public as well. You can raise money yourself and by having a stock symbol and a quote it lets people know there is any exit strategy.
In going public, the company realizes several objectives:
1. Receipt of capital to fund business objectives
2. Liquidity, or at least potential liquidity, for company insiders
3. Creation of a new form of currency to reward loyal employees or to make acquisitions
4. Obtaining a source of future capital to fund growth
5. Creation of a basis for valuation of insiders’ stock for estate tax or similar purposes, and facilitation of business succession strategies
The categories of companies which the market has been interested in taking public is as follows
1. Companies with a history of successful operations with a demonstrated growth trend that is likely to continue
2. Companies that possess a unique franchise or market niche within a market sector that is experiencing growth and management has a comprehensive business plan to realize profitable growth
3. Companies that possess patent or similar rights to a technology in a market sector which could experience rapid growth by the application of new technologies
4. Companies in a market sector that is experiencing growth headed by an entrepreneur or management team with a successful track record with prior IPO’s
Further advantages for the company
· Fund start-up operations
· Purchase equipment necessary for production
· Increase inventories of both raw and finished goods
· Support growing receivables
· Further research
· Develop the next generation of product
· Retire prior debt and
· Increase market share
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The above excerpt is from my upcoming third book My Happy Assets - Taking the Last
Steps to Financial Independence.
Businessathttp://www.smallbizcoffee.com/, only $3.99. Or both are available at lulu.com. Happy Reading!
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