The stock market is ascending towards a new high, and has doubled in the last 4 years since hitting the bottom of a dip. This is good news for many who want to have their company participate in an IPO. In spite of Facebook’s falling price, the company made many people billionaires and millionaires as soon as shares began selling. This is the hope and dream of many hard working individuals who want to reap the rewards of taking their company public.
A Short History of Public Offerings
The first known public stocks were held jointly by ancient Rome’s government and select companies, both small and large, where fluctuations in stock prices occurred. In fact, the great Roman orator Cicero made mention of the value of one stock rising.
It is believed that stocks existed in Asia, but there seems to be little evidence detailing how any stock system worked.
In 1250, reference to 96 shares of a French publicly held stock was found, while in Sweden in 1288, a mining and forestry company was noted to have distributed shares for its company. In 1531 the first stock market as an institution began in Antwerp, Belgium.
Most famously, though, were the shares sold in England by the East India Trading Company on December 31, 1600. As a joint-stock company, with shares held by both government and private citizens, it gained special favor and was given complete monopoly on trading with India for a period of 15 years, allowing it to dominate all India-related trade for that duration.
Though the Philadelphia Stock Exchange was born a little earlier, the New York Stock Exchange (NYSE) opened for business in 1792 and quickly became more powerful than its Philadelphia counterpart. Wall Street became its home, and it soon became the largest and most powerful exchange in the world, essentially without competition for two centuries. With the advent of computers, the NASDAQ rose to prominence, and, while it has more companies listed, it has remained second to the NYSE. But, this electronic-based stock trading platform forced the NYSE to merge with Euronext to form the first trans-Atlantic exchange. Still, the NYSE remains the most important and powerful exchange in the world.
Benefits of Taking Your Company Public
The term “going public” describes the process in which you convert your privately held company into a publicly traded- and owned one through the issuance of shares of stock that can be purchased by the public. Not every business owner pursues this avenue, but it is often the goal for many start-ups for the following reasons:
- It increases exposure of your company
- It provides you with access to the public capital market
- It increases your company’s credibility
- It creates wealth among original investors
- It allows for expansion and growth due to increased capital
Process for Going Public
Staging an Initial Public Offering (IPO) is very time-consuming and quite expensive. If you are interested in going public with your company, you will first need to fill out a complex set of application forms with the Securities and Exchange Commission (SEC). This can be a difficult time for the management of your company because the process can take from 6 months to a couple of years to be processed, while still having to run your company.
1) Weigh your options. Meet with your board, accountant, attorney and management team to discuss the possibility and feasibility of going public.
2) Have an independent auditor audit your records.
3) File registration statement, which is released publicly immediately, though you are unable to sell public shares just yet, and other related documents with the SEC. They are
- Part I – The Prospectus: This describes your business, the financials, and details your management team. Anyone who invests in your company must have access to this document.
- Part II – This is additional information about your company that does not have to be delivered to prospective investors, though is available from the SEC upon request. Following
There are other forms that may need to be filled and filed along the way, such as an S1 for those who seek to raise up to $10 million, or, an SB1 or SB2 for those seeking to raise an unlimited amount of cash.
Next, you will need to file any state and National Association of Securities Dealers documents so an escrow can be created to store monies in, and then for later disperse. Subsequent to this, you may then distribute Part I of your prospectus and print stock certificates, announce offering and price, and begin selling shares.
The Cost of Going Public
You should expect your legal, underwriting, printing, and accounting costs to be as low as $50,000 to as high as $250,000. However, expect additional costs to soar, including increased executive pay and benefits, as well as additional accounting costs. On average, expect an additional $2.5 million dollars to your company’s cost structure.
Part of the process of generating excitement about your company’s IPO is doing what is called a “roadshow” where you and your management team travel the country to meet and greet important investors, banks, like Goldman Sachs, financial planners, like the Wall Street Steward, and the media. Once this has been done and you have received approval from the SEC, you can begin selling shares via the exchange you become a member of. You have finally made it and are reaping the benefits of going public. Now the real hard works begins.
From the team at RevenWriters