There are several methods for a corporation to become a public company subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act) and have shares of its common stock become freely tradable in a public market. Under a traditional initial public offering (IPO) process, a company will engage an underwriter to sell shares to the public and file a preliminary registration statement under the Securities Act of 1933, as amended (Securities Act) with the Securities and Exchange Commission (SEC). Once the SEC has reviewed the registration statement and its comments are cleared, the company will file an acceleration request to allow the registration statement to go effective and the shares will be offered to the public. In conjunction with this process, the company will typically apply to have its shares listed on a national securities exchange, such as the New York Stock Exchange, Nasdaq or Amex, thus allowing a public market to develop for its stock.
The traditional IPO process is generally no longer utilized by small companies, as such companies will generally not meet the eligibility requirements to trade on a national securities exchange and due to the time and expense associated with the traditional IPO process.
For smaller companies that cannot utilize the traditional IPO process, there are several alternative methods available to become publicly traded, and thus reap the benefit of greater access to capital (which is typically seen as the main benefit of being a publicly traded corporation). Under such alternative methods, a company will typically seek to have its shares quoted on the Over-the-Counter Bulletin Board (OTCBB), through an application on Form 211 submitted by a Financial Industry Regulatory Authority (FINRA) member market maker, in conjunction with the process of going public.
Selling Shareholders Registration Statement
One such alternative method of going public is through a selling shareholders registration statement. Under a selling shareholders registration statement, the company will file a registration statement under the Securities Act on Form S-1 with the SEC, and seek to have the registration statement go effective. The shareholder registration statement will be for the resale to the public of shares previously issued in a private placement or placements by the company to the selling shareholders named therein. The effectiveness of the registration statement will subject the company to the reporting requirements of the Exchange Act under Section 15(d).
Company Registration Statement
Similarly to the traditional IPO, under a company registration statement (also known as a “self-IPO”), a company will offer shares of its common stock directly to the public. Unlike a traditional IPO, under a company registration statement, the company will not engage an underwriter; instead, the company will typically offer its shares through directors and officer of the company, or through a FINRA licensed broker-dealer that will act as a placement agent. Similarly to a selling shareholders registration statement, the effectiveness of the company registration statement will subject the company to the reporting requirements of the Exchange Act.
Form 10 Registration
Unlike a selling shareholders or company registration statement, a Form 10 registration is a registration statement under the Exchange Act, rather than the Securities Act. As such, a Form 10 registration is for the registration of a class of equity securities (typically common stock), rather than for the registration of shares of stock. A Form 10 registration statement automatically goes effective 60 days after filing, triggering a company’s reporting obligations under the Exchange Act. Since a Form 10 registration does not register any shares, a Form 10 registration by itself does not create any freely tradable shares. As a result, a company that goes public by way of a Form 10 usually must rely on the Rule 144 exemption or file a resale/company registration statement to create freely tradable stock.
Under a spin-off, a public parent company distributes shares of its non-public subsidiary pro rata to the parent company’s shareholders, thus replicating the parent company’s shareholder base for the subsidiary. Subject to the satisfaction of certain conditions, including the requisite time period under which the parent has owned the subsidiary, the distribution may be exempt from registration under the Securities Act. If the distribution is exempt from registration under the Securities Act, the subsidiary will file a Form 10 for registration under the Exchange Act.