IPO – Initial Public Offering

South Florida Securities And Investment Fraud, Misrepresentation And Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.

IPO (Initial Public Offering)

An initial public offering (IPO) has been referred to the first time a company offers its shares of capital stock to the general public. Under the federal securities laws, a company may not lawfully offer or sell shares unless the transaction has been registered with the Securities and Exchange Commission (SEC) or an exemption from registration applies. The purpose of this post is to provide the reader with general educational information concerning this concept. Please keep in mind that this post is not designed to be complete in all material respects. Thus, it should not be relied upon as providing legal or investment advice. If you have any questions concerning its content, please contact a qualified professional.

To register an offering, a company files a registration statement with the SEC, typically using Form S-1. Some offerings may involve other registration statement forms. An important part of this registration statement is the “prospectus” that will be used by the company to solicit investors. The prospectus is the offering document describing the company, the IPO terms and other information that an investor may use when deciding whether to invest. It is important to read the prospectus because it provides information regarding the terms of the securities being offered as well as disclosure regarding the company’s business, financial condition, management and other matters that are key to deciding whether the offering is a good investment.

Registration statements for IPOs are subject to review by the SEC’s staff to monitor compliance with applicable disclosure requirements. In such reviews, the staff concentrates on disclosures that appear to conflict with SEC rules or the applicable accounting standards and on disclosure that appears to be materially deficient in explanation or clarity. The staff’s review often results in revisions to the prospectus. However, the review process is not a guarantee that a company’s disclosure is complete or accurate, and the staff does not evaluate the merits of any IPO or determine whether an investment is appropriate for any investor. Rather, responsibility for complete and accurate disclosure lies with the company and others involved in the preparation of the company’s registration statement and prospectus.

Once any staff comments have been addressed, the staff will issue an order declaring the registration statement effective, which means the company may proceed to consummate its IPO. Although the staff will not declare a registration statement effective if the staff has reason to believe that the disclosure is incomplete or inaccurate in any material respect, the SEC’s declaration of effectiveness does not represent an approval of the merits of the IPO or an indication that the information disclosed is complete or accurate.

An IPO helps to establish a trading market for the company’s shares. In conjunction with an IPO, a company usually applies to list its shares on an established stock exchange, such as the New York Stock Exchange or NASDAQ. Any planned exchange listing will typically be disclosed in the prospectus for the IPO. The new public company will also be required on a going-forward basis to disclose certain information to the public, including its quarterly and annual financial statements on Forms 10-Q and 10-K.