Tips For Going Public With A

Direct Public Offering

More
and
more
issuersgoing publicopt
for
a
direct public offering.
In
adirect public offering
management sells shares of the companys stock
directly to investors, rather than through the efforts of
an underwriter.Going publicwith adirect public offering
eliminates costs and risks associated with a reverse
merger transaction.Private companies conducting a
direct public offeringshould consider the pointers below
to ensure a successful and cost-effectivegoing public
transaction.
Thedirect public offeringprocess provides options for
multiple structures, each with its own unique benefits
and requirements. The decision about the appropriate
going publicstructure often involves complex legal
issues that vary depending upon the needs of the
particular company involved.

Direct public offeringsinvolve complex disclosures and

legal issues, including those required by the Form S-1
registration statement. Forms S-1 are reviewed by the
Corporation Finance Division of the Securities and
Exchange Commission (SEC). Each of the multiple
reviews prompts comments to which the company must
respond with the help of its securities attorney. The
attorney will draft these responses and file amendments
to theregistration statement. When the SEC examiners
feel theFormS-1has satisfied all requirements, the
registration statementwill be deemed effective.
Once a company completes itsdirect public offering, it
will be fully reporting with the SEC and must submit
various reports and filings, including but not limited to
Forms10-K,10-Qand8-K.
Only a qualified securities attorney can provide the
guidance necessary to determine the appropriate
structure for thedirect public offeringand compile the
required disclosures. Companies should ensure that their

Shell Company Status

Once theForm S-1has been declared effective, the
company must locate a sponsoring market maker to file
its Form 211. Unfortunately for many startups, the 211
process is difficult, thanks to promoters who create shell
companies for reverse merger transactions using bogus
business plans. If FINRA becomes concerned that a
company may be a shell, it will make the comment
period of the Form 211 process difficult and time
consuming by requesting that the company address the
question of possible shell status exhaustively. Without
proper legal advice many startups will be unable to deal
with this problem successfully, and so will not receive
their ticker symbols.
Before submitting a Form 211 application to initiate
quotation of a companys securities, the company should
be certain it can overcome shell status. It is important
to note that this does not necessarily mean the issuer
must have revenues. The question of what constitutes

Financial Statements
AForm S-1registration statement requires that the
issuer provide audited financial statements for its most
recent two fiscal years or shorter period that it has been
in existence. The company must have an accountant
who is capable of preparing GAAP-compliant financial
statements and the necessary footnotes.
A companygoing publicmust hire an independent
registered public accounting firm to audit the financial
statements prepared by its accountant. The auditor
must also provide an independent opinion addressing
whether or not those financial statements are relevant,
accurate, complete, and fairly presented.

Disclosures In The
Going PublicProcess
TheSECandFINRAmay examine the companys website,
press releases and other publicly available information
looking for potentially misleading statements. If either
finds improper statements, they will issue comments asking
the company to offer explanations.
If theSECbecomes concerned about misleading disclosures
it will not approve the companys registration statement.
Similarly, ifFINRAbelieves an issuer is using untrue or
misleading disclosures to condition the market for a
companys securities, it will not approve the Form 211
application to initiate quotations in the OTC Markets.
Addressing areas of concern regarding disclosure early with
your attorney is often much easier than waiting for the
comment to arise.

The Transfer Agent

A transfer agent is the custodian of the companys
shareholder records, including purchases, sales,
transfers and account balances. After completion of the
going publictransaction, as the companys securities
begin to trade actively, it becomes critical to have
efficient transfer agent operations.
Setting up transfer agency early, and then issuing and
shipping shares to your initial subscribing shareholders
is a formality that helps avoid confusion and extra
burdens for the company.
Choosing a qualified transfer agent that offers a
reasonable fee structure and terms is an important yet
often overlooked step in the process. Experienced
legal counselwill usually have a good sense of the field
of service providers and can help you.

The Sponsoring Market Maker

And DTC Participant
It is becoming more and more difficult for companies
going publicto locate a qualified sponsoring market
maker to submit their Form 211 application toFINRA.
Market makers cannot be compensated for acting as a
sponsor, and compiling the application entails a
tremendous amount of time and effort. Rule 15c2-11(a)
(5) of the Securities Exchange Act of 1934, as amended,
requires sponsoring market makers to undertake
significant due diligence to achieve compliance.
In order for securities to trade electronically, the
company must locate a Depository Trust Company
(DTC) participant to file its application for DTC
eligibility. Most often the participant is a market maker.
The issuer should attempt to obtain a commitment from
its sponsoring market maker to file both its Form 211

Once all of the above has been accomplished, the new public
companys stock will be eligible to trade electronically. While
the process may seem daunting, especially given that
management of small startups rarely has a good understanding
of regulatory requirements, with the help of an experienced
securities attorney it can be made relatively painless.

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