Is your business thinking about going public? Businesses usually go public to raise large sums of money in exchange for securities. The initial offering of securities to the public is called the initial public offering (IPO).
The IPO process can be very complicated. There are certain steps you must take along the way. These steps will help insure that your IPO is successful.
Planning for the IPO Process
You need to determine at the beginning whether it's a good time for an IPO. Choosing the ideal time to go public is very important. Plan in great detail what you hope to accomplish. Examine your financial needs and wants.
It's helpful for a business to act like a public company even before it goes public. This can be done a couple of years in advance of the IPO. Develop a business plan and prepare financial statements.
Most companies use underwriters to help them with IPOs. Choosing the right underwriters is key to having a successful offering. They're usually the ones responsible for buying and selling the securities to the public. They're also responsible for investigating your business to verify the financial information given to the investors. You should select the underwriters at least a few months before the IPO date.
Filing a Prospectus
Your business must file a registration statement with the US Securities and Exchange Commission (SEC). This statement contains detailed information about the offering. It also includes information about the business, its financial history and its future plans.
The registration statement becomes the preliminary prospectus once it's filed with the SEC. A prospectus is a legal document explaining the securities offered to the public. The preliminary prospectus is also called the red herring. It's called this because red ink is used on the front page to indicate certain information may change.
The SEC will examine the registration statement during a "cooling off" period. It informs the business of any necessary changes. The statement becomes the official prospectus once any necessary amendments are made. The prospectus can be used by the public to help them determine whether they want to purchase the securities for sale.
A business going public has to market the IPO. Representatives from the company and underwriters go on a "road show" around the country. They make numerous presentations to potential investors. Typical stops include New York, Chicago, Boston, Los Angeles and San Francisco. Even international trips may be set up for overseas investors.
Final Offering Price and Amount
Choosing the final offering price and the amount of securities to be sold are very important decisions. Market conditions and the expected demand for the securities need to be examined closely. These final decisions are usually made right before the offering.
Selling on the Stock Market
The IPO is normally declared effective a few days after the final prospectus is received by the potential investors. This declaration is usually done after the stock market has closed. The securities will then be available for trade the next day. The IPO will hopefully be successful and provide new capital for the business for their present and future plans.
Questions for Your Attorney
- What kind of securities can a business sell in an initial public offering?
- I believe that a company sent out false information to get investors to purchase stock. Whom can I bring a lawsuit against?
- Where can I go to examine the financial records of a company I want to invest in?