Taking Your Company Public

Raising money via the capital markets offersrewards as well as risks. Here's what to considerbefore making such a move.

whose technology was turning the market on its ear. A few years later, the same outside angel turned far more aggressive, muscling the entrepreneur out of the picture, and bringing on new management to run things.

THE HURDLES
Should you consider the NASDAQ, New York Stock Exchange or American Stock Exchange, be aware that each has its own standards for new members. NASDAQ, for instance, requires income in the order of $400,00 million in net tangible assets. You’ll at least 400 shareholders. The admission to the American Stock Exchange is $4 million in stockholder’s equity and $750,000 in pretax income. The the Cadillac of securities markets, sets the bar as high as $40 million in net tangible assets and $2.5 million in pretax income, and you’ll need at the very least 500 shareholders.

There are alternatives. One possibility for companies with less than $3 million in assets and fewer than 500 shareholders is to forgo the big exchanges and file what’s called a Small Corporation Offering Registration. With a minimum selling price of $5 a share, up to $5 million a year can be raised this way.

ACTING PUBLIC BEFORE THE FACT
Under optimal circumstances, most experts advise you take one to two years to actually prepare your company for the stresses and responsibilities of being publicly traded. First off, you’ll need to hire key personnel you might have done perfectly well without as you barnstormed your way about the countryside marketing your wares. Now, however, a lawyer with a solid background in securities matters is indispensable as is a reputable accountant. “Those first few months, we spend a lot of time cleaning up relationships companies have with everyone from suppliers to contractors and customers,” says corporate lawyer Sylvester. There are contracts to review, lease agreements to turn upside down and corporate charters and bylaws to shore up. On top of that, there’s the task of supplying the SEC and prospective shareholders with a concrete business plan and three to five years of disclosure information, matters accountants and auditors will have to tackle.

Think you can-cut corners and hire number crunchers and a couple of paralegals? Think again. Guydon of the SEC remembers one instance where thrift upended one company’s timetable. “A fellow had developed a technology to wipe out microbes on food. He stood a good chance of getting through filing in decent time, until he decided to hire a personal injury lawyer, a buddy of his, as corporate counsel,” Guydon reminisces. “Needless to say, the entrepreneur’s friend was tripped up by the paperwork involved, and the decision ended up costing the company a full eight months in time and fees on a process that normally should have taken three months.”

There are other reasons why it pays to go with the best. “Chances are a good securities lawyer, auditor or accountant can plug you into a venture capital network or even pass your name along to underwriters,” says Sylvester. And then there is the nagging fact that institutional investors will run every inch of

Pages: 1 2 3 4 5 6
ACROSS THE WEB