Introduction
It is important for a private company to go public to increase capital base and reduce risks to the investors through asset liquidation. The main motivation for private companies to go public is to raise capital through the sale of shares. The sale of shares is a way of liquidating the shares of a private company, hence making money available to clear debts, expand into new territories and for marketing purposes (“Taking Your Company Public”). The sale of a shares of a company is also a valuable marketing tool, since it presents an opportunity for the business to generate publicity (Draho, 2004). Sale of shares may also be a viable tool of attracting and retaining employees, achieved through offering them a stake in the business (“Taking Your Company Public”). Making a private company go public offers an exit strategy for the founders of the business, since they have a way of selling their holding in the business (Draho, 2004). The process of making a private company go public is marked by an Initial Public Offering, where the company which aims to go public makes its shares available to the members of the public. Conducting a successful IPO marks the process of creating a public limited company, but it is a process which is dependent on the following steps to be successful.
Steps in Making a Company Public
Step I
The first step is identifying the goals the investors hope to achieve by going public. A team of professionals, including a certified public accountant, an attorney and an underwriter, are assembled to discuss the company’s objectives for going public. A CPA checks the books of the business, while the attorney is involved with the necessary documentations whith relevant authorities (“Taking Your Company Public”). For a company that is going public, raising of capital is the ultimate aim. It is important that the IPO goes right if the whole process of going public is to be justified. The role of an underwriter is especially important, since he/she sells the securities of the company to the public through a syndicate (“A GUIDE TO GOING PUBLIC,” 2017). A team of qualified professionals is crucial towards the success of any IPO (“A GUIDE TO GOING PUBLIC,” 2017). It is important that the services of an independent auditor be enlisted to audit the financial records. The process of getting into an IPO invites intense public scrutiny, hence the importance of careful and objective financial overview.
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Step II
The next step involves obtaining permission from the Securities Exchange Commission to sell shares of the company to the public. It is a legal requirement that private limited companies which seek to go public have to file a registration certificate and related documents with the SEC (“Taking Your Company Public”). The sale of the shares covered in the registration statement only begins when the SEC declares it “effective” (“Taking Your Company Public”). However, upon filing with the SEC, the registration documents are availed to the public domain (“Taking Your Company Public”). Filing of the registration certificates with the SEC marks the beginning of the company losing all the previous privacy it previously enjoyed.
The registration certificate is prepared by the underwriter after conducting due diligence. The registration statement is a disclosure document to the SEC which has to main scopes.
Prospectus. Contains all the information about the operations of the business, its investors and its current financial condition (“A GUIDE TO GOING PUBLIC,” 2017). A copy of this document is made available to anyone who has made an offer to purchase the shares of the company, and the investors as well (“Taking Your Company Public”).
Supplemental Information Page. This section does not have to be made available to the stakeholders of the company, although it is easily accessed from the website of the SEC (“Taking Your Company Public”). It contains various exhibits pertaining the business, such as copies of key contracts legal documents signed (“A GUIDE TO GOING PUBLIC,” 2017).
Step III
Once the registration statements are in final draft, they are uploaded in an electronic form to the SEC data collection system. The SEC thoroughly reviews the information contained therein and gives a response within thirty working days (“A GUIDE TO GOING PUBLIC,” 2017). The response is usually some of the contents of the registration statement which require further explanations or modifications (“A GUIDE TO GOING PUBLIC,” 2017). When the SEC is satisfied with the comments on its response, it declares the IPO effective (“A GUIDE TO GOING PUBLIC,” 2017). This marks the beginning of the IPO. A successful IPO means that the business has the unofficial public stamp of approval, as well as having a wider access to capital.
Conclusion
The benefits of a company going public far outweigh the drawbacks. However, the success of a company going public is dependent on its ability to conduct a positive IPO. The process of planning, funding and execution of the IPO is a challenging and tedious one. It is important to understand the information required by the SEC to facilitate faster approvals of the IPO by the regulatory authority. Assembling a team of professionals early on in the process is also crucial, since they provide the necessary guidelines. The company which intends to go public also needs to show commitment to conducting due diligence to win the confidence of the investors and general public. After all, the IPO gives the true position of a business in the environment it operates. Investors can also buy securities from other investors. This type of raising capital is from a secondary market.
References
A GUIDE TO GOING PUBLIC. (June, 2017). RSM. Online Resource Retrieved From: rsmus.com/content/dam/mcgladrey/pdf/guide_to_going_public.pdf
Draho, J. (2004). The IPO decision: Why and how companies go public . Edward Elgar Publishing.
Taking Your Company Public. Solomon Edwards. Online Resource Retrieved From: msquared.com/wp-content/uploads/2017/01/Taking-Your-Company-Public_2015_FINAL.pdf
