Preparing the Company for an IPO

Before contacting underwriters and putting together the team which will lead the IPO, the company must first undergo an internal process of preparing to go public.

The Managers' Responsibility

The company's managers need to undertake the commitment required for the process and recognize that they will have to dedicate much time to it. Being intimately involved in the demanding IPO process, which could last several months, while continuing to manage the company, imposes an enormous burden on the senior management.

Business Plan

The company must have a well-formed business plan enabling the company to be presented to underwriters and to the representatives of various capital markets as a company ready to go public. A detailed business plan and forecasts may also facilitate a swift drafting of the prospectus.

Legal Issues

Several issues need to be addressed before starting the actual IPO process. Among others, these issues include:

  • Rearranging the company's capital structure In most cases, the company is required to simplify its capital structure by creating a single class of shares only. In addition, records of ownership and transfers of securities in the company need to be updated.

  • Equalization of rights The company must cancel special voting rights conferred on certain shareholders, including special rights to appoint directors and adding to the corporate documents requirements for shareholder approvals before performing certain acts (negative covenants).

  • Canceling restrictions on share transfers The company must cancel agreements which limit the right to transfer shares.

  • "Spring cleaning" This means going over all the processes which took place in the company since its establishment and taking care of any matter which was performed against the law, either verbatim or in conflict with proper administrative rules, including approving transactions with related parties.

  • Drafting rules and policies on sensitive issues This deals with drafting directives with respect to transaction-approvals, insider trading, sexual harassment, and so on.

Accounting Issues

The company needs to ensure that its internal audit procedures meet the standards required of publicly held companies, including appointing an internal auditor and an audit committee. The internal system needs to be ready to prepare the annual and periodic reports required of listed companies. The company's financial statements need to be prepared according to generally accepted accounting principles (GAAP) and be audited by a CPA who is associated with a prestigious CPA firm (preferably one of the big four accounting firms).

Managing Investor Relations

The company needs to prepare to establish relationships with its investors. To this end, it needs to develop an appropriate investor-relations program and hence typically retains the services of an investor-relations firm (see the section on following the IPO for a further discussion).

From Concept to Wall Street(c) A Complete Guide to Entrepreneurship and Venture Capital
From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital
ISBN: 0130348031
EAN: 2147483647
Year: 2005
Pages: 131

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