Free Initial Consultation
Laura Anthony, Founding Partner
Toll Free: 800-341-2684
Phone: 561-514-0936
Fax: 561-514-0832
LauraAnthonyPA@aol.com |
West Palm Beach
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401 |
Miami Beach
Legal & Compliance, LLC
940 Lincoln Road, Ste. 319
Miami Beach, FL 33139 |
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Initial
Public Offerings (IPO's)
Initial Public Offerings (IPO's) have come under increased scrutiny
by regulatory bodies and the investment public in recent years.
It is now more important than ever before to make every possible
effort that all offering documents and disclosures are properly
drafted. There is simply no margin for error.
The infusion of capital from a well-received IPO can provide
growth companies with funds needed to expand into emerging markets,
hire additional staff as well as strengthen research and development.
The first step though is securing the services of a securities
law firm or SEC attorney experienced in drafting Registration
Statements and communicating with the Securities and Exchange
Commission (SEC).
What is a Security?
Technically speaking, the term "security" means any
note, stock, treasury stock, security future, bond, debenture,
evidence of indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option,
or privilege on any security, certificate of deposit, or group
or index of securities (including any interest therein or based
on the value thereof), or any put, call, straddle, option, or
privilege entered into on a national securities exchange relating
to foreign currency, or, in general, any interest or instrument
commonly known as a "security", or any certificate
of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe
to or purchase, any of the foregoing.
The Securities Act of 1933
The Securities Act of 1933 requires mandatory registration by
businesses seeking to sell securities in their companies. The
purpose of this securities law is to guarantee that securities
cannot be issued to the general public without first satisfying
thorough due diligence and disclosure exercises. In general
terms, a security is defined by the Securities and Exchange
Commission (SEC) as any investment instrument that is a fractional
and undivided interest such as a note, stock, bond, or debenture.
Basically, if parts of a whole are sold to multiple investors
for the purpose of speculation, these parts are classified as
securities.
Legal Counsel is Retained
It is advisable that legal counsel be retained by the issuing
company before they even begin to seek out the services of auditors
or a managing underwriter. The IPO process is difficult and
expensive enough without having to repeat steps that were executed
incorrectly or missing critical steps entirely. Experienced
legal counsel acts as the IPO guide, assisting the issuing company
to save time and money by drafting mandatory filings correctly.
Counsel must also effectively communicate with the SEC throughout
the underwriting process to confirm due diligence and compliance
requirements are satisfied.
A Managing Underwriter is Selected
A managing underwriter or investment banking firm is then selected
that will spearhead the offering. This is a highly critical
stage of the process so it is necessary to complete a thorough
due diligence on the prospective underwriter or investment banking
firm. It is also highly advisable to review the performance
of the underwriter's previous offerings when considering their
participation.
Offering Structure is Established
Initial Public Offerings can be made up of stock, warrants or
a combination of both. A warrant is otherwise known as a convertible
security and, when offered in conjunction with shares of stock,
is referred to as a "unit".
When deciding upon the IPO structure the primary consideration
is the number of shares offered versus the offering price per
share. The general industry rule of thumb is that a minimum
of 1,000,000 shares is preferred in order to produce a public
float large enough to satisfy wide distribution and support
a liquid aftermarket.
Price is Set
The issuing price of the stock is based on a variety of factors
including;
Book value (net assets divided by outstanding shares)
The trading price of stocks for comparable businesses
What the market will bear
Price paid by previous investors and/or shareholders
Listing Requirements
Listing requirements vary greatly from one exchange to another.
The Over the Counter Market (OTC) which includes both the Bulletin
Board and Pink Sheets, does not have requirements as to the
number of shareholders, price per share or asset value of the
company to be listed.
If an issuer intends to have their stock listed on the NASDAQ
or the American Stock Exchange (AMEX) then specific price levels
must be set and maintained. If the price of a security drops
below a mandatory price threshold for a specified period of
time, it will be delisted and then relisted on a lesser exchange
such as the OTC Bulletin Board or Pink Sheets. In addition to
share price, exchanges take into consideration aggregate market
value of the offering.
Legal Counsel Drafts the Registration Statement
Legal counsel then works with auditors who create audited financial
statements. Counsel also drafts the Registration Statement,
the document that discloses the financial condition of the issuing
company and all details of the offering structure to the SEC.
The Registration statement also contains the intended use of
the equity to be raised as well as material transactions with
insiders.
The first half of the Registration Statement is the prospectus,
the disclosure document read by potential investors to allow
them to perform their own due diligence prior to participating.
The second half consists of additional information which is
available to the public on the SEC website and EDGAR system.
Corporate Counsel Communicates with the SEC
Once the Registration Statement is filed with the Securities
and Exchange Commission (SEC), revisions are requested and details
of the offering must then be redisclosed or clarified. Comments
are issued by SEC staff and any deficiencies in the Registration
Statement are corrected until the document is approved.
The communication process between the SEC and corporate counsel
is vital to the timely completion of the IPO. If handled incorrectly
the offering can be delayed for months.
Legal & Compliance Understands the IPO Process
Our securities attorneys understand the importance of your offering
and make every possible effort to complete your IPO in a timely
and cost-effective manner. Our goal is to save time by satisfying
disclosure and registration requirements as early on as possible
in the IPO process. Time saved is time that can be dedicated
towards building a more productive company. |
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