Using SEC Form S-1 to Go Public



SEC Form S-1: what is it?

SEC Form S-1 is the SEC form used to make a registration with the Securities and Exchange Commission under the Securities Act of 1933.

The Securities Act of 1933 requires all new issues of securities to be registered with the SEC unless exempt. If you want to put this in perspective, go to our discussion of Securities Law. Basically, the Securities Act of 1933 covers issues of new securities and the Securities and Exchange Act of 1934 which covers securities already outstanding and trading in the markets.

Here is the laundry list of information required by Form S-1:

Risk Factors and Ratio of Earnings to Fixed Charges.

Use of Proceeds.

How the offering price was determined.

Dilution to shareholders purchasing in the offering (e.g. the book value of a share of stock is $2 and the public investor pay $15, how much did they get diluted).

Selling Security Holders, if any.

Plan of Distribution – how are you going to sell this stock

Description of Securities to be Registered.

Interests of Named Experts and Counsel – to see if they are biased

Information with Respect to the Registrant:
  • description of business
  • description of property
  • legal proceedings, if any
  • market price of and dividends on the registrant’s common equity and related stockholder matters
  • financial statements meeting the requirements of Regulation S-X and the applicable rules
  • management’s discussion and analysis of financial condition and results of operations
  • changes in and disagreements with accountants on accounting and financial disclosure
  • quantitative and qualitative disclosures about market risk
  • Information on directors and executive officers
  • executive compensation, and information on corporate governance
  • security ownership of certain beneficial owners and management
  • transactions with related persons, promoters and certain control persons

The Registration Statement vs. the Prospectus

The entire filing of the Form S-1 is the “registration statement,” and the part to be shown to investors is the “Prospectus.”

The Red Herring

When the SEC Form S-1 is filed, the company will produce a preliminary prospectus, known as a “red herring” because it bears a warning in red ink that this is not the final prospectus and is subject to change.

Exhibits to the Form S-1

There is a list of Exhibits to be filed with the Form S-1. Smart corporate counsel will have all of these exhibits in order in advance, where possible.

The exhibits required include the articles of incorporation and by-laws, all important contracts, including key employment contracts, copies of the security to be issued, and a list of subsidiaries.

Comment Letters

After the filing, the SEC has a period of time to comment on the filing. The SEC will comment on matters it feels necessary to be improved in the filing.

The company duly answers these comments and amends the Form S-1 as indicated and files the amendments. The SEC may again comment so the company has to again amend. This will continue until the SEC has exhausted its comments.

Acceleration

When the comments appear to be handled, the company may request that the filing be made effective by means of an “acceleration letter.” Here is a sample of such a letter.

IPO Effectiveness

The SEC then declares that the offering is effective. The underwriter may then place the securities, whereas before effectiveness, it could only accept indications of interest.

IPO Trading

When the underwriter has placed the issue, it will then start trading.


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