Many business owners have the goal of taking their company public, and raising capital, but are not large enough to justify the expense of an Initial Public Offering (IPO). These companies can grow quickly through acquisitions and mergers in order to reach the right size. Pacific Business Advisors can assist entrepreneurs find suitable acquisition targets and merger opportunities. Going public is also known as flotation which is the term used in many other countries.

Notwithstanding, IPOs are still costly because an underwriter must be hired which can easily cost 5% to 7% per share.

Fortunately, it is possible to avoid hiring an underwriter and the IPO process by taking a company public by means of the direct listing process (DLP), also known as a direct placement, or a direct public offering (DPO). A direct listing also avoids lockup agreements and dilution of the existing shares.

Upon listing of a company's stock, whether by means of an IPO or DPO, the company will be subject to the reporting and governance requirements of all public companies. A CPA can advise you about these requirements.

Most DPOs do not require the issuer to register with the Securities and Exchange Commission (SEC), but they must comply with state disclosure laws. Companies that go public using a DPO will trade their securities in the over-the-counter market because they will rarely qualify for listing on an exchange.

Prominent companies that have recently gone public using the DPO are Ben & Jerry's Ice Cream, ZipRecruiter, Slack Technologies, Roblox Corporation, Palantir Technologies, and Spotify. You may be next.

While our firm can assist clients with mergers and acquisitions, owners intending to go public should seek the advice of legal counsel.

 

Blue Sky Laws

Blue Sky Laws are state laws that require registration of securities and prohibit fraud to protect investors from speculative schemes and fraudulent investment practices. Unlike federal laws which apply nationwide, blue sky laws are specific to each state, having different requirements. Some exemptions may apply.

 

How DPO Stock Is Traded

Although an issuing company can raise funds from the company through a DPO, a trading exchange platform for its securities will still not be available. Unlike an IPO that usually trades on the NYSE or Nasdaq after its offering, a DPO will not have such a trading platform but can opt to trade in the over-the-counter markets (OTC). Like OTC securities, DPO securities may face illiquidity and risk if they are not registered and do not conform to the requirements of the Sarbanes-Oxley Act.

 

Floating Stock

Floating stock is the number of shares available for trading a particular stock. Low float stocks are those with a low number of shares. Floating stock is calculated by subtracting closely-held shares and restricted corporate stock from a firm's total outstanding shares.

Closely-held shares are those owned by insiders, major shareholders, and employees. Restricted stock refers to insider shares that cannot be traded because of a temporary restriction, such as a lock-up period.

A stock with a small float will generally be more volatile than a stock with a large float. This is because, with fewer shares available, it may be more difficult to find a buyer or seller.

 

Nano Cap Stocks

Nano cap stocks refer to publicly traded stocks with a market capitalization of $50 million or less. They are the smallest stocks by market cap and are often referred to as penny stocks although a nano cap stock does not have to be a penny stock. They are smaller than small cap stocks.

 

Penny Stocks

Penny stocks refer to stocks of publicly traded stocks that trade for less than $5 per share. While some penny stocks trade on major stock exchanges such as the New York Stock Exchange (NYSE), most trade over the counter through the OTC Bulletin Board (OTCBB).

 

Regulation Crowdfunding

Regulation Crowdfunding enables eligible companies to offer and sell securities through crowdfunding. The rules:

• Require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal;
• Permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period;
• Limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and;
• Require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering.

Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Regulation Crowd funding offerings are subject to "bad actor" disqualification provisions.

 

 

 

Unquoted Public Companies - Unlisted Public Companies

Offering Memorandum/Prospectus

Blank Check Company

Jumpstart Our Business Startup Act

Reverse Takeover - Going Public