Eventually, many business owners will want to go public with their companies. This is a key step in the process of becoming a lasting, respected company. In addition to the reputation boost it can give a company, going public has a multitude of other benefits, one of the biggest ones being the power of having public stock. While you may be sure that you want to go public, you may not have a firm grasp on the multiple steps you need to take before you can go public. It’s important to understand the process and know what it will entail before you start down that road.
What Does It Mean to Go Public?
When a company goes public, it essentially means that it has gone through a set of steps necessary to publicly sell shares of its stock. The Initial Public Offering (IPO) refers to the first round of stock sales from a company. While going public and putting out an IPO are not without risk and downsides, they can help a growing company raise a considerable amount of capital.
What Are the Advantages and Disadvantages to Going Public?
Going public may not be the right decision for every company. If money is tight, for example, you should know about all the new costs and fees that may be associated with going public. Here are a few more of the common advantages and disadvantages of deciding to go public with your company.
- Stock can be used to fund new company acquisitions.
- Stock can also be offered as part of an attractive employee compensation package.
- Public companies may be viewed as more reputable.
- What management gains in prestige, they may lose in freedom.
- Issuing an IPO is an expensive process.
- Financial activity may come under more scrutiny.
Key Steps in the Process of Going Public
- Inform Board of Directors. The board of directors is the first group that you will need to get approval from. This can be done by presenting a thorough business summary as well as a plan for going public.
- Get Financial and Legal Help. It is important to have the right experts, including an accountant and a lawyer, on your team in the event that the board approves plans to move forward with going public.
- Ensure Financial Compliance. Reviewing the past five years of financial statements to check for Generally Accepted Accounting Principles compliance is the next step. This is where an accounting firm will be helpful.
- Find an Investment Bank. After finding an investment bank, a “letter of intent” is drawn up to create a formal agreement with an investment bank.
- Create a Prospectus. After the agreement is reached between company and bank, you need to create a prospectus, which will include items such as business information, information about shareholders, and financial state of the company.
- Undergo a Due Diligence Investigation. The investment bank you work with will conduct a “due diligence investigation” to assess the company and possibly find information that will require the prospectus to be changed.
- Approach the SEC. The SEC is the next group that needs to examine your prospectus.
- Contact Other Investment Banks. After the SEC-review, a “syndicate” of various banks who can sell your offering will be formed.
- Go on the Road Show. During the road show, a company will travel around to different potential investors and analysts to make presentations about the state of the company.
- Set the Company Offering. The investment banker will help to set a price for the offering the day before it is released for sale.
- Finish and Print the Prospectus. Once the prospectus has been reviewed by the SEC and all other interested parties, it can be sent to print.It may seem like a complicated process, but going public can be worth it. Make sure you understand what it will entail, and have a qualified team of professionals to help you.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.