“Preparing Your Company for an Initial Public Offering”

by John C. Yates, Esquire

Are Incorporation Documents and Corporate Records in proper form?

  • Articles of Incorporation must comply with state law (O.C.G.A. §14-2-202 for Georgia corporations) and should indemnify Directors to the maximum extent.
  • Bylaws must accurately reflect an effective plan for managing the Company and regulating its affairs and should protect the Company’s Officers and Directors from liability to the maximum extent provided by law.
  • Foreign Qualification Certificates must be available from every state in which the Company conducts the required level of business.
  • Stock Transfer Records must be accurate, including the documentation of options, and must demonstrate that stock has been issued only in compliance with the law and with the Articles of Incorporation and Bylaws of the Company.
  • Minutes of the Meetings of the Shareholders and Directors must be accurate and current and must reflect the necessary approvals of the Shareholders and/or Directors for corporate acts as required by state law and the Company’s Articles of Incorporation and Bylaws.

Is the Company organized so that its business can be easily understood by the investment market?

  • Complex capital structure including numerous classes of stock should be simplified through conversion or redemption of shares.
  • Complex organizational structure with business conducted through numerous affiliated entities should be simplified so that the Company stands alone or with divisions and/or wholly-owned subsidiaries.
  • Complex business structure involving a number of unrelated lines of business should be simplified so that the Company maintains one or a limited number of related lines of business.

Has the Company adopted appropriate takeover defenses to protect the Company after the IPO?

  • Staggered Board Elections, Poison Pills” and/or other measures should be taken to make a takeover more difficult or less attractive.

Is the Company in compliance with stock exchange rules?

  • At least two outside directors must be on the Board of Directors in order for the Company to be listed on the stock exchanges on Nasdaq.
  • Audit Committee of the Board of Directors must be appointed for the Company to be listed on Nasdaq.

Has the Company complied with requirements regarding capital stock?

  • Options and warrants must not have been granted to such extent as to cause the number of underlying shares to exceed 10% of the number of outstanding shares once the IPO is completed.
  • Option plans must be put in place prior to the IPO and must be approved by stockholders.
  • Issuance of shares before the IPO at prices far below the expected price must comply with NASAA “cheap stock” requirements.

Is the Company in compliance with securities laws?

  • Registration requirements of Securities Act of 1933 and applicable state blue-sky laws: exemptions from registration must have been available for all past issuances of capital stock – especially within three years prior to IPO.

Has the Company properly handled its insiders?

  • Transactions with directors, officers, principal shareholders and their families during the three years prior to the IPO that involve at least $60,000 must be disclosed in the IPO prospectus.
  • Executive officers of the Company, who will be subject to greater resale restrictions, must be identified for the prospectus, and their pay for the three years prior to the IPO must be disclosed.

Has the Company secured satisfactory third-party relationships?

  • Consents may be required to use names of primary customers and suppliers in the prospectus.
  • Major agreements must be identified in prospectus. Company should determine which portions of such agreements must be blocked out to preserve confidentiality.
  • Lending relationships should be in good order.
Are Incorporation Documents and Corporate Records in proper form?
 

  • Articles of Incorporation must comply with state law (O.C.G.A. §14-2-202 for Georgia corporations) and should indemnify Directors to the maximum extent.
  • Bylaws must accurately reflect an effective plan for managing the Company and regulating its affairs and should protect the Company’s Officers and Directors from liability to the maximum extent provided by law.
  • Foreign Qualification Certificates must be available from every state in which the Company conducts the required level of business.
  • Stock Transfer Records must be accurate, including the documentation of options, and must demonstrate that stock has been issued only in compliance with the law and with the Articles of Incorporation and Bylaws of the Company.
  • Minutes of the Meetings of the Shareholders and Directors must be accurate and current and must reflect the necessary approvals of the Shareholders and/or Directors for corporate acts as required by state law and the Company’s Articles of Incorporation and Bylaws.

Is the Company organized so that its business can be easily understood by the investment market?

  • Complex capital structure including numerous classes of stock should be simplified through conversion or redemption of shares.
  • Complex organizational structure with business conducted through numerous affiliated entities should be simplified so that the Company stands alone or with divisions and/or wholly-owned subsidiaries.
  • Complex business structure involving a number of unrelated lines of business should be simplified so that the Company maintains one or a limited number of related lines of business.

Has the Company adopted appropriate takeover defenses to protect the Company after the IPO?

  • Staggered Board Elections, Poison Pills” and/or other measures should be taken to make a takeover more difficult or less attractive.

Is the Company in compliance with stock exchange rules?

  • At least two outside directors must be on the Board of Directors in order for the Company to be listed on the stock exchanges on Nasdaq.
  • Audit Committee of the Board of Directors must be appointed for the Company to be listed on Nasdaq.

Has the Company complied with requirements regarding capital stock?

  • Options and warrants must not have been granted to such extent as to cause the number of underlying shares to exceed 10% of the number of outstanding shares once the IPO is completed.
  • Option plans must be put in place prior to the IPO and must be approved by stockholders.
  • Issuance of shares before the IPO at prices far below the expected price must comply with NASAA “cheap stock” requirements.

Is the Company in compliance with securities laws?

  • Registration requirements of Securities Act of 1933 and applicable state blue-sky laws: exemptions from registration must have been available for all past issuances of capital stock – especially within three years prior to IPO.

Has the Company properly handled its insiders?

  • Transactions with directors, officers, principal shareholders and their families during the three years prior to the IPO that involve at least $60,000 must be disclosed in the IPO prospectus.
  • Executive officers of the Company, who will be subject to greater resale restrictions, must be identified for the prospectus, and their pay for the three years prior to the IPO must be disclosed.

Has the Company secured satisfactory third-party relationships?

  • Consents may be required to use names of primary customers and suppliers in the prospectus.
  • Major agreements must be identified in prospectus. Company should determine which portions of such agreements must be blocked out to preserve confidentiality.
  • Lending relationships should be in good order.