Going Public

What is a Public Offering

A public offering is the sale of a company’s shares to the public. Most businesses have shares that are owned by individuals. These shares are not openly sold in a public market or exchange; rather, the business ownership  is “closely held”.   The public offering makes the shares available for purchase by the public without general restriction.  In some cases, the shares will be sold on a public exchange. In other situations, the shares are sold in private deals known as “over-the-counter” transactions.

 

Why Go Public? 

Going public is a method of acquiring additional funds for the operations and growth of the company. It is a primary method by which current owners exit the firm. The existing shareholders are able to sell their shares to the future shareholders. In many cases, the existing business owners will sell only a percentage of their ownership interest.

 

The Process of Going Public

Going public, often referred to as an Initial Public Offering (IPO), requires the registration of a company’s stock with the Securities and Exchange Commission (SEC). The law governing the IPO is the Securities and Exchange Act of 1933. The SEC requires extensive disclosures to the public of information about the company and the offering. Failure to closely adhere to the regulations prescribed by the SEC can lead to both civil and criminal liability. The intricacy of the IPO process generally necessitates the use of professional service providers. For example, most IPOS involve commercial banks that manage the sale of the shares to the public, law firms who negotiate and memorialize the deal, and business consultants who plan the operational aspect of the offering. . These banks serve as intermediaries between the company and the purchasers of shares. If the shares may meet the requirements to be traded on a public exchange. The exchanges have their own requirements for the companies selling their shares.  A public company must meet continued disclosure requirements to the public and its investors. The continued disclosure requirements are governed by the Securities and Exchange Act of 1934.

 

We go further into the IPO process in our other resources.

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