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The Basic Requirements to Go Public

 
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If you want to Go Public and Get a Ticker Symbol on the OTCBB, NASDAQ, AMEX or NYSE, there are three requirements:
 
  • You have to have free trading stock.
  • You have to become an SEC reporting company, meaning a company that is required to file reports under the 1934 “Filing Reports” Act, as described under the Button “SEC Reporting and Compliance.”
  • You have to have the Financial Institution Regulatory Authority, called FINRA, issue you a Ticker Symbol. The SEC does not issue ticker symbols.

The SEC Process to Go Public

The filing of an SEC registration statement accomplishes the first two bullet points above to go public in that it gives you free trading stock and makes you a mandatory SEC Reporting Company.

The first step to go public is to prepare the SEC filing. To write the filing to go public, your SEC attorney will ask you to complete a “due diligence” questionnaire to obtain the information necessary to prepare the disclosure part of the filing. These questionnaires come in a wide variety of formats. Some SEC attorneys have found that using a shorter form questionnaire facilitates this step of the process. They ask their clients to:
 
  • Complete a background questionnaire on all officers and directors.
  • Provide copies of all material contracts and agreements.
  • Provide a business plan or other information they have regarding their business.
  • Provide the internet address of their website.

They will then prepare a draft of the actual Form S-1 that will be filed with the SEC to go public. They ask all of their unanswered questions about information needed to go public directly in the draft S-1 they send back to you. They will ask you to type the answers directly into the draft S-1. You and they repeat this process until the entire disclosure part of the S-1 is completed.

The accounting part of the filing to go public is more difficult. The days of your being able to send your Quickbooks files to your PCAOB audit firm and ask them to prepare your financial statement to go public is long over. So to go public first, you have to prepare on your own financial statements, including all footnotes. The financial statement must conform to all SEC requirements. You may not know or may not have anyone on your staff who knows how to do this. If this is the case, you must hire a second accounting firm that is probably not a PCAOB member firm but that has experience drafting financial statement for SEC filings to go public. Eventually, you, your accounting firm if you have to hire one, and your PCAOB audit firm will finish the financial statements required for the filing to go public.

The second step in the process to go public is to file your Registration Statement. This however is not as easy as it seems as the SEC won’t accept filings in paper format or in Word. They will only accept them in a specified electronic format that requires special software for conversion of Word documents to filing documents.

The SEC’s filing system is called the Electronic Data Gathering, Analysis, and Retrieval System, or EDGAR. A whole cottage industry has sprung up to convert your documents into SEC filing format in a process called EDGARization.

The third step in the process to go public is the SEC review of your filing after you file.

The SEC process focuses on your disclosure and the financial statements. The SEC disclosure review staff reviews you filing to assure that you have disclosed everything that is required by the Form and Regulation S-K. The SEC accounting staff reviews your filing to assure that your financial statements meet all the requirements of GAAP and Regulation S-X.

Many people do not understand and some actually fear the SEC review process when they want to go public. So here are the facts.
 
The SEC is not like the FTC.
 
The FTC reviews mergers, examines and makes subjective decisions the merits of the mergers and sometimes blocks the mergers from going through.
The SEC reviews registration statement but does not make any subjective on the merits of your filing. They review to assure that all of the information required by the rules and regulations is included.
 
The SEC does not block registration statements when you are trying to go public.

There are many things the SEC does not care about if you are trying to go public. You may have many “Will the SEC care if …” questions, such as:

Will the SEC let you go public if:
 
  • Your company is a start-up, early development stage company?
    • NO. The SEC doesn’t care about your stage of development and will let you go public as long as it’s fully and accurately disclosed.
 
  • Your company has no or little revenues?
    • NO. The SEC doesn’t care about your revenues or other aspects of your financial condition and will let you go public as long as it’s fully and accurately disclosed.
 
  • Your company does not have the money on hand to implement your business plan?
    • NO. The SEC doesn’t care about your financial ability to implement your business plan and will let you go public as long as it’s fully and accurately disclosed and you actually intend to implement the business plan described in your filing after you go public.
 
  • Either you or one of your officers or directors has had a personal or business bankruptcy?
    • NO. But it must be disclosed to go public.
 
  • Your stock is priced at $.01 or $10.00 per share?
    • NO. But offerings at $.01 cause the SEC staff to pay more attention to your filing when you seek to go public.
 
  • You have a big firm or small firm advising me or auditing?
    • NO. The SEC does not grant favors based upon the size of the firm representing you in the filing to go public. As long as the auditor is a PCAOB member, the SEC doesn’t grant any favors to large vs. small audit firms.

Your filing to go public will clear the SEC, but to facilitate the process to go public it will greatly help you to:
 
  • Hire an experienced professional with a proven track record to write the disclosure part of your filing to go public.
  • Respond to all requests from your professional advisor helping you go public completely and timely.
  • Hire experienced professionals with a proven track record to prepare your financial statements and audit your financial statements needed to go public.

If everyone in the process works hard, the filing to go public can be completed and ready to file in 30 days or less. If you do all of the above, your filing to go public will clear the SEC.