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Public Offering Laws

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What Is an Initial Public Offering?

An initial public offering (IPO) is the first non-private sale of securities by an issuer or a person controlling the issuer to members of the public. Generally, any offering that is not exempt under the private offering exemption of the Securities Act of 1933 (Regulation D) is a public offering.

What Steps Are Required For an Initial Public Offering?

There are several steps that must be taken before a company can make a public offering. The following is a basic layout of what must be done:

  • Determining the value of the company - Usually, a company must be valued at between $50 million to $100 million after a public offering to attract an institutional following. Evaluating comparable companies is an effective way of determining your own company's value.
  • Deciding on the amount of the offering -The offering must be worth at least $15 million and total more than 2 million shares in order to attract institutional buyers.
  • Selecting managing underwriters - Selecting the appropriate managing underwriters is a vital and difficult task. Issuers should look for managers that are both reputable and large, yet have the time and commitment to treat the client with personalized attention.
  • Figuring out the timeline to market - It typically takes between six to ten weeks to prepare the registration statement and prospectus included in an IPO filing, plus an additional five to seven weeks to complete the c review process. Issuers must coordinate this schedule with their company's financial reporting cycles, since financial statements cannot be more than 135 days old at the effective date of the IPO.
  • Enacting a quiet period - The company should cease all press and other public activities once a decision has been reached to begin the IPO process. Doing so will minimize the risk of activities such as insider trading and other forms of securities fraud.

Do I Need an Attorney to Make a Public Offering?

Yes. If your company is considering making a public offering, you need to contact an attorney. The formalities of planning an IPO make the process both extremely complex and technical. Speaking with a business law attorney will ensure that you do not violate any SEC regulations as well as maximize your IPO's viability.

Photo of page author Kristen Johnson

, LegalMatch Legal Writer

Last Modified: 06-30-2015 10:35 AM PDT

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