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How Do I Go Public?

Going public is a major milestone for a company. Going public is not for everyone, and one size does not fit all. Should you decide to go public, doing so comes with numerous benefits. The biggest advantage is being able to use the equity of your company as a form of currency. You can sell stock to raise capital. Becoming a publicly-traded company can also increase credibility with investors, attract employees, and boost your profile with customers. If you’re contemplating, “how do I go public?” there are three main methods that can be used.

Filing a Registration Statement With the Securities and Exchange Commission

Under federal securities law, any offer or sale of a security must be registered with the Securities and Exchange Commission (“SEC”) or qualify for an exemption. Form S-1 is the registration statement that must be filed by a company and declared effective in advance of its first sale. Form S-1 requires that companies furnish details regarding the business model, planned use of capital proceeds, price per share, and various financial information.

Form S-1 contains two parts: Part I, also referred to as the prospectus, and Part II. Audited financial statements for eight quarters must be filed with the registration statement. Soon after they have been filed, registration statements become publicly available for the public to view. They can then be accessed and reviewed by potential investors.

While it can be expensive and time-consuming, filing a registration statement with the SEC is the cleanest way of going public with your company. Investors tend to take companies that use this method to go public more seriously than alternate reporting companies.

Relying on Regulation A

Filing a Regulation A exemption is an alternative way of going public that does not involve onerous oversight from the SEC. The Regulation A statement does involve the SEC. Companies that use Regulation A to go public have several distinct advantages — there are limited audit obligations and no requirement to provide SEC reports until the company has acquired $10 million in assets and over 500 shareholders. Even though the company’s numbers do not need to be audited, they must still be reviewed by an accounting firm.

Companies that rely on Regulation A can offer securities at two different tiers: Tier 1 and Tier 2. Although each tier has its own requirements, the issuer must file an offering statement with the SEC under both. The offering statement includes the offering circular, which serves as the primary disclosure document for investors.

Under Tier 1, an issuing company is permitted to raise up to $20 million within a 12-month time frame. There are no ongoing reporting requirements under Tier 1 other than issuing a final report on the status of the offering. Tier 2 allows companies to offer a maximum of $75 million in a 12-month period. Tier 2 issuers must produce audited financial statements and file ongoing reports. Although they do not need to register, they must still file the offering with the SEC.

Regulation A cannot be used to go public if the company has already been public.

By Performing a Reverse Merger

A reverse merger occurs when a private company purchases control of a public operating or a public shell company in order to go public. The SEC defines a shell company as one that has nominal operations or none at all and little to no assets, or only cash assets. The most common form of reverse merger is a triangular merger in which a public shell company creates a wholly-owned subsidiary company that merges with the private company.

While it can take as long as a year to go public through a registration statement , a company can become public with a reverse merger in as little as 30 days. This method can also allow a company to become public at a lower cost, but it is not without risk. Some reverse mergers result in liability for past debts, lawsuits, poor record-keeping, and reverse stock splits.

Within four days after the reverse merger transaction has been completed, a public company must file a Super 8-K — the company will not be public until this has been done. A Super 8-K is an 8-K with a Form 10 information. Both the financial statements of the original company and the merger candidate must be included.

Contact a Knowledgeable New York Business Attorney to Learn More

Going public is a challenging process and it’s critical to have the guidance of a business attorney with experience handling corporate and securities compliance matters. Brinen & Associates is committed to helping companies become public and remain compliant with SEC regulations. Call (212) 330-8151 to learn how we can assist you.

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