Companies use the S-1 registration statement to make disclosures, as required under the Securities Act of 1993, for a public offering of securities. The securities can include, for example, equities (common or preferred stock), warrants, debt offerings, or a combination of these. A company making a public offering is exempted from filing an S-1 (and gets to file a kinder, gentler form) only if it has been filing annual (10-K) and quarterly (10-Q) reports with the SEC for at least three years and meets certain additional criteria. For that reason, an S-1 filing company is sometimes called “unseasoned,” but that term only refers to its trading history as an individual company. Although a firm filing an S-1 can be a fledgling company with few employees it can also be a large division, being spun off of a public company, or a prominent private firm.
The following discussion uses the example of an S-1 for an equity offering from a company that has never previously sold stock to the public. However, many of the comments are applicable to any S-1 filing and also relate to the S-1/A, an amended form that adds detail to the initial document.
From an investor perspective, an initial S-1 form provides the first glimpse of a company’s preliminary prospectus, also known as a “red herring,” which contains a wealth of information about the filing company. Companies often file S-1’s with the SEC long before they make printed prospectuses available to the public, so investors can get a head start on their research by reading SEC filings. Thanks to the electronic dissemination of SEC documents through www.sec.gov this can give you free access to new preliminary prospectuses, as well as amendments and other documents related to initial public offerings, shortly after their filing.
Have You Tried To Raise Money Privately?
FACT – It is easier to attract private placement investment capital if your company’s common stock is already publicly traded. A ticker symbol provides liquidity for shareholders and is a great corporate tool to attract private placement capital. This tool provides assurances to the restricted capital investors that there is a ‘light at the end of the tunnel” and they will be able to realize an eventual return on investment.
Champagnenw specializes in providing the tools necessary for a small developmental stage company’s stock to become listed on a public trading medium in a cost-effective manner. We are your bridge to the public market.
Disadvantages of Going Public
- Public Reporting – Being public requires certain reporting to the government and to shareholders. This requires time and expense, for example, audited financial statements.
- Confidentiality – Being a public company requires full disclosure; management can no longer keep the actions and progress of the company confidential.
- Dilution – By becoming a public company, whether through an IPO, DPO or a “shell merger”, the present shareholders will give up some equity of the company and be diluted in their percentage of ownership.
- Liability – Management has certain additional liability required by law to the shareholders and to the public. Being public allows additional visibility, which automatically increases the level of liability.
- Maintaining stock value – Being a public company requires a certain amount of public relations, both to the public and to the financial community, to keep the stock trading at a level, which reflects the value of the company. This requires both time and money.
- There are several different options available to companies desiring to go public. Each has its own advantages, disadvantages, state and federal requirements, time constraints, and costs. Careful consideration should be given as to the method used to achieve a public company, and the advice of professionals should be sought.
Advantage of Being a Public Company
- A public offering of company stock will improve the company’s net worth, enabling the company to obtain capital or borrow money on more favorable terms.
- A public company can more easily expand through acquisitions, using its own stock rather than depleting needed cash.
- The company may be better able to attract and retain more highly qualified personnel by offering stock options, bonuses, or other incentives involving company stock with an ascertainable market value.
- Through public ownership of its securities, the company may be in a position to gain prestige, become better known nationally, and improve its business operations.
- There is an easier possibility of converting debt to equity and to strengthen the company’s balance sheet.
- An equity offering from a lender’s perspective strengthens the financial condition of the company (reduces leverage).
- Future financing may be obtained more easily since the company can offer investors security that is liquid, more freely tradable, with an ascertainable market value.
- Liquidity for the owners of the company, including founders, venture capital and other professional investors, can be achieved under Rule 144 Taking a company public may enable the company to eliminate existing personal guarantees to lenders and others and generally allow the company to avoid any future personal guarantees.
- Establishing a public market for the stock usually allows the founders and owners to achieve a psychological sense of financial success and self-fulfillment and an exit strategy.
Read: How to Get Listed on OTCBB?
How We Can Help You?
The public markets aren’t just for big companies. In fact, the public markets can offer an excellent environment for small businesses to grow. At CNENW, we’re dedicated to helping small businesses go public.
- Education. Our first objective is to educate business owners about the process of going public and numerous benefits offered by the public markets.
- Registration. If your company is a good fit for the public markets, our second goal is to help you register your securities at the state or federal level. Contrary to popular wisdom, it’s possible to begin trading on the public markets without mountains of red tape. We can guide you through the process, helping you keep costs down. Our network of world-class professionals truly cares about small business, and when you allow them to consult on and produce your paperwork, you’ll save hundreds of thousands of dollars in the process of joining the public markets.
- Compliance. Finally, through our Professional Associates, we work with small public companies to help them maintain compliance with the SEC regulations in order to remain listed as a public company.
The basic registration form is Form S-1. It requires companies to disclose, among other things:
- A description of the company’s business;
- Properties of the company;
- Material transactions between the company and its officers and directors;
- Identification of officers and directors and their remuneration;
- Certain pending legal proceedings;
- The plan for distributing the securities; and
- The intended use of the proceeds.
The S-1 is not prepared as a fill-in-the-blank form like a tax return but is similar to a brochure, with the information provided in a narrative format. There are also detailed requirements concerning financial statements, including the requirement that such statements be audited by an independent certified public accountant (PCAOB qualified).
In addition to the information expressly required by the form, the company must also provide any other information necessary to make the statements complete and not misleading.