The Path from Main Street to Wall Street

A short introduction to ‘ going public “

By Attorney David Grossack

H. Ross Perot is on record as saying that one of the problems with the American economy is that not enough companies “go public “, that is, raise money from investors by selling shares of stock. The benefits of this process to the entrepreneur are many. The Company gets an infusion of working capital for purposes such as growth, research and development , marketing or whatever the company needs are.

Moreover, the founders have both a means of liquidity and an exit strategy. When shares are publicly traded, the founders, when they wish, can sell their stock in the open market, or even in a private sale, because buyers know there is a market for the stock. The shares can also be used as collateral for a loan, and new shares can be issued when new financing is needed. It is almost as if when the founders need more money, their stock certificates can be peeled off as if they actually had a printing press to print more money. It isn’t quite that simple, but similarities do exist.

Issuing stock to employees can be a means of rewarding and enhancing loyalty. The shares of stock can be a “supercurrency” for the purpose of buying other companies, property, or such items as equipment , inventory, technology and trademarks, depending on the entrepreneur’s negotiating skills and needs. Swapping stock is now a popular means of building business alliances and suing your own stock to invest in other companies. Publicly held companies enjoy far more status than privately held companies.

So what are the drawbacks ? There are several. First, going public is an expensive process which requires the involvement of accountants and lawyers with specialized training. Second, the process is slow, and highly regulated. This is an area where the rules and regulations make up a labyrinth of dangerous and costly potential pitfalls, and for this reason a company needs a staff of people who can deal with the red tape, the lawyers and the CPA’s needed for the process.

Thirdly, if your company is going to file quarterly reports , the ongoing process is even more complex, expensive and a pressure cooker. There is a process of disclosure, with deadlines, for earnings and expenses, assets and liabilities, significant events, shareholder’s equity and other information which , in effect, causes the company to exist in a “fishbowl”. There can be very few things left secret. Companies that participate in this process are called “ reporting companies.”

There exist a category of “:non -reporting “ companies that are less expensive to develop, but which can still be traded publicly on what is called ‘ The Pink Sheets.” They would not have as much prestige as a company listed on , say, Nasdaq , but they still are considered a kind of “farm team “ for emerging companies.

Other entrepreneurs seek to do stock offerings off shore to save money and time. The entire process of globalization has made this easier. Virtually all of the major business enterprises in the world have gone public. Stock exchanges now exist in almost every country, incluing several such as China and Vietnam and all over Eastern Europe, that once opposed the system of private enterprise, but now emulate the American success with public offerings.

If you are a business owner, going public may be a path that you should consider.

Attorney David Grossack is a lawyer in private practice in Newton, Massachusetts. He has represented companies before the Securities and Exchange Commission and advised numerous small companies on securities law.. He has extensively litigated securities matters. His e-mail address is dcg3@ix.netcom.com. Mr. Grossack currently serves as General Counsel if the National Writers Syndicate.

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