It must be the dream of most if not all entrepreneurs that the day will arrive when their business has experienced growth to such an extent that it warrants a listing on the stock market. If this epic step in the path of your business ever comes into fruition, then you’ll need to know that you’re entering a whole new arena, and one you’ll need to prepare for. Getting a company listed is quite the task to put it lightly. Regrettably you can’t just call up the NYSE or the NASDAQ proclaiming your desire to have your company listed. There are checks and balances that need to be met before you reach that much-anticipated status of IPO (Initial Public Offering).
Does it make good business sense?
The main most responsible reasons for listing a company is to get access to capital markets, to experience constant growth, to conduct mergers and acquisitions, and to bestow employees with equity-based incentives. These aspirations must be clearly dictated to you investors so that they fully comprehend your companies goals. You’ll be entering the main vein of the financial sector where currencies, shares and commodities are constantly being exchanged; where speculation and derivatives all co-exist. You’ll need to place yourself in a position of getting extensive knowledge of certain markets and local laws. If you are operating in The United Kingdom or America, you will need to understand the correlation between GBP and US dollars naturally, and the same goes for any other currency trading couple or regulations, applicable to where your company is registered.
Filing a registration
It all starts with the SEC (Securities and Exchange Commission). You’ll need to file what is known as a Form S-1 with the SEC, in its declaring amongst other things, the prospectus – the document that you provide to all parties looking to buy shares in your company. The prospectus has to intricately detail your business operations, its financial health, as well as its management and risk factors. In addition, you’ll need to submit audited financial documents and statements. The SEC will also request other financial details that were not disclosed in the prospectus. If the SEC deems any of the information you provided as misleading, inaccurate or incomplete, then it can reject your registration. If your company has reached what is known as ‘critical mass’, then it’s also more likely to be considered for listing. Critical mass implies that your company has reached a point at which it’s become relatively easy to foresee and determine its medium-term growth. However, when it comes to growth forecasts, don’t aim too high – that way you can avoid disappointing the market when you release your first financial report.
Listing standards for stock exchange
The stock exchange is not unlike any exclusive club you might have encountered before. Whether it’s the NASDAQ or the NYSE, you’ll need to meet certain criteria. Listing requirement include your initial stock price, the number of shares, the number of shareholders and the your company’s total market value. Once you’re trading on the exchange the standards to which you’ll need to adhere will not be as stringent.
Underwriting is an essential part of the listing process. You’ll need the services of an underwriter to act as a go-between for your company and potential investors. The vitality of the underwriter cannot be understated. As the risk expert of the financial world it is the underwriter that investors depend on to gauge whether or not it’s worth taking a risk on your company. Prior to getting your company listed on the stock exchange, the underwriter you’ve employed must intellectually asses the risk of buying your entire inventory of stock before its sale to the public. Once the SEC has scrutinised your company, the underwriter will draft the aforementioned prospectus to shop around to investors in order to raise their excitement.
The greater good
Your motives or what drives you to go public need to be pure. Investors may not always be fully informed, but their’ no fools, that’s for sure. In other words, if you’re considering listing your company, make sure your motives are in the right place as investors are quick to pick up on uncertainty. Hence, if your ideals are to acquire capital over the long term, then the odds of getting the respect, support and loyalty of investors over the long term will be good.