IPO Legal Strategies: Ascent Law Firm's Expertise

Your business is getting off the ground. You’ve more than doubled the number of employees you had compared to when you were first working out of your garage. You’ve secured a dynamic location for your business in the vibrant downtown area of your city and your company continues to grow.
Now, it’s time to make a tough decision. Should you “go public?” There are many factors to consider before making an initial public offering (IPO) including timing, how much control you are willing to yield to your shareholders, and regulatory constraints.

Here are some things to consider before filing for your IPO and going public. Is the timing right in your company’s industry? If you announce your IPO when your industry is in a slump, chances are it will receive a lukewarm reception. Making an IPO in a climate that favors your industry will boost your chances for success.

How would the company’s structure, key contracts, and relationships be affected by an IPO? When your company makes an IPO, some contracts and corporate relationships may be terminated because of control provisions. Some loan agreements may require you to get your lender’s approval before making a substantial stock offering. Stock purchase agreements may provide for the conversion of preferred stock or the acceleration of warrant exercise periods when the company makes an IPO. You should review all such agreements and make certain that they aren’t a stumbling block.

Does your company have enough money to make a successful IPO? Legal and accounting fees alone often start at $200,000 and can exceed half a million dollars. Once the underwriter’s 7 percent commission, marketing, and other costs are added, few successful IPOs go out at less than $25 million.
Is your company willing and able to fully commit to an IPO? The faster an IPO is completed, the better its chances for success. The market looks less favorably on IPOs that are delayed or “put on ice.”

Is your company ready for greater public scrutiny? The market will be particularly interested in your company’s financial results, share price, executive compensation, management and director performance, governance practices, and insider trading record.

Are your company records in good shape? You’ll need to show detailed audits for the past three years, and will have to prepare public quarterly and annual financial reports and document stock ownership.

Does loss of control by a key shareholder(s) pose a problem? Typically, controlling shareholders’ percentage of equity interest and voting interest is lowered by an IPO. Also, transactional freedom is more limited, for example by the need for shareholder approval of certain decisions.
Can your company afford the distraction of an IPO? An IPO generally demands significant management attention for at least six months.

Is your company set to look like a star performer? Companies that don’t meet their earnings targets take a beating on the stock market.

Are the correct management and administrative personnel in place? Officers experienced in running a public company are highly desirable. During the marketing “road show,” top executives must be effective spokespersons in promoting the company. Also, after going public, management and administrative tasks are significantly increased.