Taking a Company Public Requirements

Taking a company public requirements refer to the steps business owners must take in order to be legally allowed to offer investments or stocks to the public.3 min read

Taking a company public requirements refer to the necessary steps business owners must take in order to be legally allowed to offer investments or stocks to the public. There are specific documents that must be filed with the state, and it's best to approach this process with a thorough plan.

The Basic Steps for Taking Your Company Public

There are seven basic steps to follow when you decide to make your business a part of the public offering:

  1. You'll need to develop a business plan with a unique concept to draw investors and write an executive summary.
  2. Then, you'll want to put your company founders in place before you incorporate the business. This can be done using a pre-incorporation agreement.
  3. Be sure to document all major decisions and moves that the company takes. You'll want to write an official offering document and keep track of any forms you file for the business.
  4. The company offering will first be used to raise capital to get the business off the ground.
  5. Be sure to have all of your forms in order with the proper departments for the Securities and Exchange Commission (SEC) like Form 10 or an S-1 form.
  6. You'll need to file your due diligence documents and secure a market maker or filing broker for your NASD submission.
  7. Once you have all of your ducks in a row, you'll want to promote your public offering to get the investors you need.

Types of Offerings

First, there's the initial public offering (IPO) option for companies wishing to go public. This route requires you to find an investment bank with clout to underwrite your public offering. There are some strict requirements for companies that choose this option. An IPO offers quicker funding because the bank basically buys your offering and sells the shares itself to the public.

Second, the directed public offering (DPO), also called a registered offering, allows a business to sell its shares to the public directly. This means less expensive and regulations than an IPO, but the company may have to wait a while to get enough investors in order to gain the funding they need.

Lastly, some will choose to go the alternative public offering route. This option provides the business with more immediate funding because more investors tend to like this type of offering. Alternative public offerings are carried out through reverse mergers with public shells.

Benefits of Taking a Company Public: Access to Capital

When companies are publicly traded, they open the doors to more financing options than what private companies have. Public companies can look to the public market when they need additional capital for new projects or ventures. This might look like using a secondary equity offering or convertible bonds, but again, there are options.

Companies with public status also tend to have a favorable outlook with private and public investors when looking for alternative funding. This is also true for lending and supply companies, so public companies are likely to be able to get good financing options. When a business is in need of loans, it can use its public stock as collateral for the loans.

Benefits of Taking a Company Public: Valuation

Public companies tend to have higher valuations than private companies. Studies show that public companies can be valued as much as five times higher than private companies. The reasons for higher valuations of public companies include:

  • Liquidity.
  • Capitalization.
  • Capital structure.
  • Profit measurement.
  • Risk profile.

Having high valuation comes in handy if a company is going to be acquired by another.

Benefits of Taking a Company Public: Liquidity

Public companies gain more access to funds because publicly traded stock is more fluid than private stock. This characteristic allows for investors to buy and sell your stock and work the market, which leads to more potential investors for your company. The liquidity of public stock encourages investors, venture capitalists, and others to buy and therefore gain your company more capital.

Benefits of Taking a Company Public: Compensation

Many public companies actually include stock offerings in their compensation packages alongside salaries. When companies use stock-based compensation, they tend to attract more employees and hold on to the ones they already have. Many employees like this option because it helps them feel like an integral part of the company and gives them incentive to help the business succeed.

If you need help with understanding the requirements of taking a company public, you can post your legal need on Legal Marketplace's marketplace.

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